Macro

BHP chairman steps down after Samarco delayed retirement

BHP Billiton Chairman Jac Nasser will not seek re-election at next year's annual general meeting, he announced on Thursday, saying after 10 years at the top and overseeing the initial response to the Samarco dam disaster, it was time to retire.

Nasser said he had intended to resign last year but agreed to stay on at the world's biggest miner to provide stability as BHP responded to the disaster in Brazil.

Now the "basic structure of the Samarco response is in place," Nasser said in a speech at this year's Annual General Meeting (AGM), he would not seek re-election, but would carry on leading the board in the interim.

BHP's Chief Executive Andrew Mackenzie in a separate speech said the company had set a 2025 goal of achieving "gender balance at all levels of the organisation over the next decade".

The 12-strong board has three women members.

Mackenzie declined to be drawn on whether there might be any particular considerations in deciding the new chairman, saying the board was engaged in an ongoing succession process.

Asked whether the new chairman might be a chairwoman, Nasser said "why not?" but he would not insist on a woman, adding changing the gender balance would take time.

As someone who grew up in the northern suburbs of Melbourne, Australia, Nasser, 68, said he had never expected to lead global companies.

He was named chairman of BHP in August 2009 and had joined the board as non-executive director in 2006.

Before that, he was CEO of Ford, where his reputation as a cost-cutter earned him the nickname "Jac the Knife".

At BHP, Nasser experienced the China-led commodities boom and the bust, which the company had weathered better than peers, he said.

"We kept a solid A credit rating through the valley of the commodity price death," he said.

BHP had been ahead in enforcing a shift away from unfettered spending to a focus on productivity and efficiency, he added.

Nasser said he hadn't given much thought to what he would do next, but it was the right time to move.

"Whenever you join a board, I think you always have some timeframe in mind. My timeframe was in the order of 9 to 10 years," he said.

His last year has been what he described as "one of the most challenging periods" in BHP's history, largely because of the Samarco dam burst in which 19 people died. Samarco is a 50/50 joint venture between BHP and Brazil's Vale.

Brazilians impacted by what Brazil says is its worst environmental disaster were among those who staged a protest outside Thursday's AGM in central London.

Mackenzie said the company was working flat out to rectify the damage and compensate those affected.

China rebukes firms for breaking emission limits during heavy smog

As part of efforts to control hazardous air pollution, Beijing and Hebei province have implemented rapid response systems to limit traffic and force firms to cut production or slow construction work during heavy smog.

But investigations over the past week revealed that a number of enterprises were failing to comply with emergency measures, the Ministry of Environmental Protection said in a notice on Thursday.

The ministry said 11 enterprises in Hebei and nine in neighboring Shandong province were found to have exceeded emission limits during a recent period of heavy smog from Sunday to Wednesday.

It identified a subsidiary of the Tangshan Thermal Power Company as well as cement and glass manufacturers in the region, and also said a number of construction sites in Beijing had failed to follow regulations to reduce dust.

The smog covered an area of 260,000 square kilometers, including the cities of Beijing, Tangshan and Baoding, and was the result of "unfavorable weather", the ministry said.

It said it would continue to name and shame those guilty of illegal behavior and would also impose tougher punishments.

The environment ministry has long struggled to impose its will on polluting enterprises and the local governments that protect them.

But since the country launched a "war on pollution" in 2014, the ministry has been granted more powers to monitor and punish offenders. This year, it was also given special powers to send out investigation teams.

An inspection of Hebei province at the beginning of the year revealed that firms had flouted rules and engaged in fraudulent practices, and the local government subsequently promised to do better.

According to the official Shanghai Securities News, the ministry will begin a new round of inspections on Friday in 20 regions - including Hebei, the major coal-producing regions of Shanxi and Inner Mongolia and the northwestern region of Xinjiang, a major oil and gas producer.

Attached Files

China scores WTO victories against some U.S. anti-dumping methods

China won the bulk of a World Trade Organization complaint against certain U.S. methods of determining anti-dumping duties on Chinese products in a WTO dispute panel ruling released on Wednesday.

China brought the complaint in December 2013, one of a string of disputes challenging Washington's way of assessing "dumping," or exporting at unfairly cheap prices.

Specifically, the panel found fault with the U.S. practices of determining dumping margins in certain cases of "targeted dumping," in which foreign firms cut prices on goods aimed at specific U.S. regions, customer groups or time periods.

Dumping is normally found when a foreign producer's U.S. prices are lower than its home market prices for the same or similar goods, or when the imports are sold at prices below production costs.

The panel ruled against the U.S. Commerce Department's practise of "zeroing" in cases involving targeted dumping. In zeroing, the department typically assigns a value of zero any time a producer's export price is above that producer's normal home market price, partly to account for freight and customs charges.

In practice, the zeroing methodology tends to increase the level of U.S. anti-dumping duties on foreign producers.

Some points of China's argument were rejected by the WTO panel, including a claim that the Commerce Department systematically punishes Chinese state enterprise by assigning them high anti-dumping rates.

Either side can appeal the ruling within 60 days.

China's Ministry of Commerce welcomed the ruling saying that the WTO panel had "upheld China's principal claims" on the unlawfulness of targeted dumping and the separate rate applied in certain U.S. anti-dumping measures.

The dispute related to several industries including machinery and electronics, light industry, metals and minerals, with an annual export value of up to $8.4 billion, it said.

"The United States is disappointed by these findings," a spokesman for the U.S. Trade Representative's office said in a statement.

"We will carefully review the report and consider next steps. Nothing in the report will undermine the commitment of the United States to impose antidumping duties to address injurious dumping," the USTR spokesman added.

China's economy grew 6.7 percent in the third quarter from a year earlier, steady from the previous quarter and in line with expectations, as increased government spending and a property boom offset stubbornly weak exports.

Analysts polled by Reuters had predicted gross domestic product (GDP) data would show the world's second-largest economy was stabilizing, expanding at the same pace as in the first and second quarters and putting it on track to hit the government's full-year target.

But slumping private investment, surging debt levels and the risk of a property market correction are leaving growth more dependent on government spending and keeping global investors on edge.

Real estate investment growth ticked up to 5.8 percent in January to September, a slight increase from 5.4 percent over the first eight months. But many cities are moving to restrict home sales as prices surge over 50 percent in some places, leading to concerns that growth will take a hit.

"Looking ahead, we think that the cooling measures in property market will weigh on China's economy over the coming quarters," Commerzbank economist Zhou Hao in Hong Kong said in a note.

Official data showed consumption contributed 71 percent of GDP growth in the first three quarters of the year, compared to the 66.4 percent contribution for 2015. The increase is partly due to contracting net exports but also indicates some success in rebalancing from investment-led growth.

The economy grew 1.8 percent quarter-on-quarter, the National Bureau of Statistics said on Wednesday, in line with market forecasts and compared with revised 1.9 percent quarterly growth in the second quarter.

The government has set a growth target of 6.5-7 percent for the full year. The economy expanded 6.9 percent in 2015, the slowest pace in a quarter of a century.

The statistics bureau said in a statement that many uncertain factors in the economy remain and that the foundation for sustained growth is not solid.

Huaneng power output down 3.5pct over Jan-Sept

Huaneng Power International Inc., China's largest listed power producer, generated 232.59 TWh of electricity in the first nine months of the year, down 3.49% from the year-ago level, said the company in a statement released on October 18.

The company attributed the decline to decreasing utilization hours of thermal power units, sharp rise of nationwide hydropower output, and newly-installed nuclear units in Liaoning, Guangdong, Fujian and Hainan, which squeezed the market share of the company's thermal power units.

In the third quarter this year, the company realized electricity generation of 86.51 TWh, rising 6.56% from a year ago.

In the first three quarters of the year, a total 219.74 TWh of electricity was sold, and the average on-grid electricity price was 394.45 yuan/MWh, down 11.69% on year, the company said.

The power sales amounted to 81.66 TWh in the third quarter, down 6.83% on year, it added.

ECB's First Chief Economist Warns: The EU Is A "House Of Cards"

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.

“One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.

Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.

The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.

The central bank already holds over €1 trillion of bonds bought at “artificially low” or negative yields, implying huge paper losses once interest rates rise again. “An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous,” he said.

“The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past,” he said.

Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

Indeed, as I highlighted in last year’s post: German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks.

Highly increasing expenditure on armed materials and wars on Yemen with a terrible downfall of oil prices have torn apart the Saudi Arabia’s budget, resulting which the Government came up with decision of tightening its own citizens

Saudi’s are now facing reductions in take-home pay and benefits for government workers and a host of new fees and fines. Huge subsidies for fuel, water and electricity is increasing day by day.

One of the top most renowned Govt. Run dairy Almarai, which is also one of the top brands in the Middle East, will mean $133 million from the bottom line this year, company officials said.

Prince Mohammed’s plan for an economic betterment has sent waves of tremors through a nation whose citizens have long enjoyed a cosseted lifestyle underwritten by the state.

“The government is moving very fast at reforming things in Saudi Arabia, while the people are finding themselves left behind. Life as usual and business as usual can no longer continue,” said Lama Alsulaiman, a businesswoman and board member of the Jidda Chamber of Commerce and Industry.

“Rewriting the social contract carries high risks for the 31-year-old deputy crown prince, who has staked his reputation on transforming the economy. “People are looking to see if he can do it,” said Ibrahim Alnahas, a political-science professor at King Saud University in Riyadh, the capital. “If so, his future would be king. If not, his future would be lost.”

Crude oil does more than billions of dollars in profits to Saudi Aramco, the state oil company, and Sabic, the chemical giant. It also buttresses energy-intensive sectors like cement production and aluminum smelting.

“It is striking the extent to which every major industry relies on cheap energy, whether directly or indirectly,” said Glada Lahn, co-author of a study for Chatham House, a London think tank,that warned that the kingdom could become a net importer of oil within a few decades if it did not make significant changes.

In a meeting of the Organization of the Petroleum Exporting Countries in Algeria, Saudi Arabia’s agreement to cut production to raise the price of crude, showed the urgency policy makers here are feeling.

Prince Mohammed announced plans this year to sell off a small piece of the country’s economic crown jewel, Saudi Aramco, to free up money for investment.

The budget deficit was nearly $100 billion last year. The country’s foreign reserves have dropped by a quarter since oil prices started falling in 2014. The government has taken loans from foreign banks and will try to borrow more from the global bond market.

Five southern China provinces 3Qs power use up 3.6pct on yr

China's five southern provinces reported their power use at 674 TWh in total over January-September, a year-on-year rise of 3.6%, compared with an increase of 0.4% a year ago, showed the latest data from the National Development & Reform Commission (NDRC).

Of this, power consumption of Hainan and Guangdong rose 6.7% and 5% on year, compared with increases of 6.9% and 4.7% over January-August; Guangxi and Guizhou followed with power use climbing 2.9% and 2.4% on year.

Yunnan posted a decline of 1.6% in its power consumption in the first nine months, compared with a drop of 1.5% over January-August.

In September, electricity use of the five provinces stood at 81.8 TWh, up 7.1% from the year-ago level.

Hainan, Guizhou, Guangxi, Guangdong and Hainan all saw climbing power use in September, with year-on-year growth at 15.2%, 11.7%, 6.6% and 5%, respectively, while Yunnan posted a 0.5% drop in the month.

China's risk clamp down hits commodity trades, niche broker business

New rules in China aimed at curbing risk and speculation have triggered an exodus of institutional cash from the country's commodities futures markets and hobbled a thriving niche business for brokers.

Before the ban, futures brokers were launching hundreds of structured products a month offering guaranteed returns, which attracted institutional cash and fed billions of dollars into the commodity futures markets.

Now, fresh launches are just a trickle as the brokers comply with new rules that include a ban on guaranteed returns. With no promise of big returns, the 100 brokers or so that run asset management businesses offering these products are struggling to keep clients.

"The new rules made the launch of structured products nearly impossible," said Ni Chengqun, a senior manager with the asset management arm of Hicend Futures in Shanghai.

The slump in trade is a blow for the likes of the Shanghai Futures Exchange and the Dalian Commodity Exchange, which run China's biggest commodity futures contracts.

Average daily volume in steel rebar futures, for example, dropped to 5.3 million in September from 13.5 million in April, while iron ore turnover dropped to 1.5 million from 4.7 million.

The rule changes by the Asset Management Association of China (AMAC) prohibit asset managers at futures brokers from guaranteeing returns, restrict leverage and include stricter standards for funds acting as advisors. AMAC was taking aim at highly-leveraged products that were offering the promise in many cases of returns of 8-9 percent.

In one popular type of product, brokers pooled funds from investors and deployed the capital in equities, fixed income and commodity futures markets for a specified period. An outside fund acted as an advisor to devise the trading strategy.

Futures were central to many of the products because they offer the ability to leverage, one asset manager said, citing the need to deposit as little as 10 percent of the contract value on margin. So an investor pool of $10 million can wield a notional position of up to $100 million in the market.

As a result, a relatively modest price gain in that market can produce outsized profits on the initial deposit.

Such juicy returns attracted institutional fund managers. Banks such as China Merchants Bank and some of the big-five lenders flocked to the products, asset managers said.

BIG PROMISES, BUMPER LEVERAGE

In the first half of 2015, the hottest structured products were tied to equity indexes like the Shanghai/Shenzhen CSI 300 Index, which surged roughly 50 percent from January to June amid a retail investor buying frenzy.

Futures on the CSI 300 rallied by the same degree, and volumes more than doubled from the year before to average over 1.2 million contracts a day for the first half of 2015.

Alarmed by the prospect of a bubble, regulators then stepped in to restrict trade, triggering an exodus from stocks and effectively barring retail investors from trading stock futures. CSI 300 futures volumes collapsed. Average trade in the first half of 2016 was 80 times less than a year earlier.

That's when futures brokers steered investors into fixed income, equities and commodities, sparking a surge in commodities trading in early 2016. Iron ore and steel futures prices jumped more than 60 percent by mid-April.

LOWER FEES, MORE COMPETITION

For brokers, the latest rules come just as a proliferation of new rivals has intensified competition in their core business of hedging risk.

An estimated 80 percent of brokers' asset management business focused on leveraged structured products, people working in the sector said.

Now, brokers like Huatai Futures, which manages more than 10 billion yuan ($1.5 billion) in assets, and Hicend Futures, are finding only tepid interest from investors in products that comply with the new rules.

"Since banks can't be guaranteed high returns, most of them have lost interest, while a few are only willing to work with big asset management firms," Hicend's Ni added.

Kang Lan, a senior asset manager at Huatai in the southern province of Guangzhou, said her firm has only managed to launch one fund under the new rules. In the month before the change, the firm had set up as many as 10.

Russian state fund to co-invest $1 billion in India

A man rides past a billboard near one of the venues of BRICS (Brazil, Russia, India, China and South Africa) Summit in Benaulim, in the western state of Goa, India October 14, 2016. REUTERS/Danish Siddiqui

The state-backed Russian Direct Investment Fund (RDIF) will work with an Indian fund to invest $1 billion in Asia's third-largest economy, the head of the fund said before a bilateral summit expected to yield several big business deals.

The RDIF and India's National Investment and Infrastructure Fund (NIIF) will each invest up to $500 million in the joint fund, replicating partnerships the Russian entity has with countries like China.

"We helped in the process of the NIIF being created," RDIF CEO Kirill Dmitriev said in an interview with Reuters. "Now we will provide equity capital to joint Russian-Indian projects, mainly in India."

The RDIF was set up by Dmitriev in 2011 with billions in Kremlin cash and has since made partial exits from bets in Russia, including the Moscow Stock Exchange, diamond miner Alrosa (ALRS.MM) and Rostelekom (RTKM.MM).

It also worked with Indian infrastructure investor IDFC to invest $1 billion in power projects when President Vladimir Putin last visited India in late 2014.

India is courting international investors to help finance new roads, railways and power projects that the country needs.

Putin will meet Indian Prime Minister Narendra Modi in the tourist destination of Goa on Saturday for a summit at which major defense, oil and nuclear power agreements are expected to be signed.

The RDIF-NIIF partnership will also be sealed at the summit. It will address around 20 investment proposals and seek to strike its first deals in 2017, said Dmitriev.

Leaders of the BRICS caucus - Brazil, Russia, India, China and South Africa - will also gather in Goa this weekend. The bloc has founded its own New Development Bank that has co-invested in two RDIF-backed hydropower plants in Russia that have just broken ground.

Dmitriev said he hoped that the Russian fund would be able to draw on the platform of the BRICS bank to build similar small-scale hydro projects in India that are based on Russian technology.

Exhibit C: Political change: Trump?

GOOGLE SEARCH TRENDS: HOW TO VOTE FOR TRUMP IS CRUSHING HOW TO VOTE FOR HILLARY

Don’t we just love our Google data, folks? I swear, we have the best Google data! Granted, Google has already censored crucial election data, but thank god that the Google Trends tool is still a thing.

Although, being that “how to vote for Trump” is crushing Hillary, the Clinton camp should be very concerned. Seriously, “how to vote for Trump” has nearly twice as many searches as “how to vote for Hillary”. Feel free to spin that as “uneducated” Trump supporters. But, the fact that more potential voters are searching how to vote for Trump should be extremely telling.

Attached Files

Exhibit B: A weak global economy.

Exhibit A: Debt to GNP

Oil and Gas

Chesapeake Energy declares ‘propageddon’ with record shale frack

The era of the monster frack has arrived in North America, and Chesapeake Energy Corp. is singing its praises.

Chesapeake said Thursday at an analyst conference that it set a new record for fracking by pumping more than 25 000 t of sand down one Louisiana natural gas well, a process the shale driller christened "propageddon.” The super-sized dose of sand – known as "proppant" – is able to prop open bigger and more numerous cracks in the rock for oil and gas to flow. Output from the well increased 70% over traditional fracking techniques, Jason Pigott, VP of operations, said during a presentation.

Shale drillers aren’t holding back in North American shale fields, where the average amount of sand used for each well has doubled since 2014, according to Evercore ISI. At the same time, the length that wells are drilled sideways underground has grown by 50%, and the number of zones for hydraulic fracking are also up by half. Each zone of the well isolated for each frack is also growing larger as servicecompanies attempt to break down more of the oil-soaked rock into rubble and cram more sand into the crevices for thehydrocarbons to escape.

MONSTER-SIZED

The more massive and complex wells are helping producers manage through the worst financial crisis in a generation by drawing more oil and gas at reduced costs. The price of West Texas Intermediate, the US crude benchmark, cratered to a 12-year low in February and still trades at less than half the $100-plus prices of June 2014. To cope with the market crash companies slashed billions in spending and cut more than 350 000 workers around the globe.

The fracking process, which is part of completing a well after it’s drilled, continued to get bigger even as the industry was strapped for cash, James West, an analyst at Evercore, said Thursday in a phone interview. "We expect as the recovery for commodity prices unfolds and people have more money to spend, completions will only rise further."

Explorers are taking advantage of the larger frack jobs while prices for oilfield work remains low. Halliburton, the world’s largest fracking provider, told analysts and investors Wednesday on a conference call that about 70% of the industry’s fleet of frack pumps are being put to use.Halliburton confirmed it executed the record frack for Chesapeake.Haynesville Well

The amount of proppant used in Chesapeake’s record-setting well was more than twice the amount used on a per-foot basis in traditional frack jobs, according to a slide presentation that accompanied Pigott’s remarks. The company used 50.185 million pounds (22.76 million kilograms) of sand in its Black 2&11-15-11 1H well in the Haynesville shale region ofLouisiana earlier this month. The well had a lateral length of 9,764 feet.

"This Chesapeake well is further evidence that more proppant, more stages and longer laterals is the right way to go," West said. "Clearly it’s increasing productivity per well substantially.

World’s largest oilfield company Schlumberger has reported a steep drop in its third quarter profit.

Namely, the company’s net income for the quarter was $176 million, an 82 percent drop from the same quarter a year ago, when it posted a net income of $989 million. Revenue fell some 17 percent to $7 billion, down from $8.47 billion in the third quarter of 2015.

Cash flow from operations was $1.4 billion for the third quarter of 2016 and included approximately $170 million of severance payments during the quarter.

Schlumberger Chairman and CEO Paal Kibsgaard said that working capital was negatively affected by lower than expected collections as the company is seeing “widespread delays” in payments from customers in all geographies.

Kibsgaard said that in the global oil market, the supply and demand of crude is now more or less balanced as evidenced by flattening petroleum inventory levels and the start of consistent draws toward the end of the quarter—particularly in North America.

“At the same time, oil demand for 2017 was again revised upward in October and if combined with OPEC’s announced intention to cut production, this suggests further inventory draws in the coming quarters that should lead to upward movement in prices,” he said.

No V shape recovery

The CEO said: “In terms of 2017 E&P investment, visibility remains limited as our customers are still in the planning process. We maintain that a broad-based V-shaped recovery is unlikely given the fragile financial state of the industry, although we do see activity upside in 2017 in North America land, the Middle East and Russia markets. We are therefore ensuring that we are optimally positioned to capture a large share of this upside that we can subsequently turn it into positive earnings contributions.

“With the unparalleled cost and cash discipline we have established, we are confident in our capability to deliver incremental margins north of 65% and a free cash conversion rate above 75%. Going forward, this will give us significant flexibility to both re-invest in our business and steadily return cash to our shareholders. This capability, together with our unmatched scale and our unique ability to drive change throughout our company, clearly sets us apart from other industry players.”

What's behind these surprising crude stockpile declines

"Refiners are importing less crude oil and are really just starting to draw down onshore inventory," Andrew Lipow, president of Lipow Oil Associates, told CNBC. "Week in and week out we're seeing lower amounts of imports than one might expect given the amount of crude oil we're processing."

Lipow expects inventories to continue to decline as refiners and traders begin to draw down their stockpiles to avoid a bigger tax bill, rather than buying new imported barrels. Taxes on stored barrels are assessed in parts of Texas and Louisiana at year-end.

Fuel inventories also remain elevated, and the surprise 2.5 million barrel build in gasoline stocks on Wednesday is disconcerting for refiners, Lipow said.

John Kilduff, founding partner at energy hedge fund Again Capital, agrees that refiners appear to have little need for imports. Refining margins have also eroded as oil prices rebound, prompting refiners to burn off their stocks while they wait to see if prices slide, he said. Refiners typically see profits rise when crude oil, the raw material for many fuels, falls.

Ultimately though, Kilduff said he believes barrels sitting in floating storage will finally come onshore and cause inventories to creep higher once again.

"Refinery run rates are just too low not to see substantial crude builds," he said.

Crude inputs into refineries have fallen by more than 1.5 million barrels per day since the beginning of September.

It is not unusual for 12 million barrels of crude to sit off the shore of the refinery-lined Gulf Coast, but ClipperData has tracked 22 million barrels in floating storage in the past week, according to Matt Smith, head of commodity research at the firm.

Smith said Wednesday's data marked an inflection point as refiners exit the peak of refinery maintenance season.

"Going forward, we should see refinery runs starting to increase, these refineries coming out of maintenance, and then a return to imports and a return to builds," he said.

Santos Quarterly Sales Rise 11% on Production Boost, LNG Volumes

Santos Ltd., the Australian oil and gas company, reported a 11 percent rise in third-quarter sales due to a boost in production.

Revenue rose to $650 million from $585 million a year ago, Adelaide-based Santos said in a statement Friday. The company switched to reporting in U.S. dollars at its interim results in August. Production increased to 15.5 million barrels of oil equivalent from 14.5 million barrels of oil equivalent in the corresponding period of 2015.

Forecast capital expenditure for 2016 has been trimmed to $700 million from $750 million previously. The producer narrowed its 2016 production guidance to a range of 60 million to 62 million barrels of oil equivalent from the previous band of 57 million to 63 million barrels. It will also start an oil hedging program "to reduce the effect of commodity price volatility and support annual capital expenditure plans".

Santos is among companies grappling with a slump in energy prices amid a surge in liquefied natural gas supply. The International Energy Agency says an oversupply in natural gas won’t disappear until the end of the decade as LNG capacity jumps 45 percent through 2021 with 90 percent of that supply due to come from Australia and the U.S.

The company’s main assets include a 13.5 percent stake in Exxon Mobil Corp.’s $19 billion LNG venture in Papua New Guinea and a 30 percent stake in the $18.5 billion Gladstone LNG project in Australia, which it said produced 1.3 million tons of LNG in the quarter.

PDVSA Default Would Spell Trouble for U.S. Refiners’ Oil Supply

A potential default by Petroleos de Venezuela SA would cause trouble for U.S. Gulf Coast refineries, as the Latin American country is the main supplier of foreign oil to the region.

Venezuela’s state-controlled oil company PDVSA has been trying to persuade bondholders to exchange as much as $5.325 billion of outstanding notes maturing in 2017 for longer-term securities that are due in 2020. The deadline for the swap was extended three times and is due Friday, according to a company statement. A failure in exchanging the bonds could make it “difficult” for the company to make payments on its existing debt, PDVSA said.

A default would not only rattle bondholders, but also PDVSA’s suppliers and customers, with U.S. refineries among the first to feel the hit, said Lucas Aristizabal, a senior director at Fitch Ratings. Last year the OPEC member supplied almost a third of all crude oil imported on the Gulf Coast, home to the largest cluster of refineries in the world, according to the U.S. Energy Information Administration.

“If PDVSA defaults, there could be a disruption of oil supply to the U.S. as creditors may try to seize payments made in the U.S.,” Aristizabal said in a phone interview from Chicago. “Bondholders will definitely try to stake a claim on those dollars,” he said.

PDVSA subsidiary Citgo Petroleum Corp., Phillips 66, Valero Energy Corp. and PBF Energy Inc. are among the largest buyers of heavy Venezuelan crude. A number of Gulf Coast refineries have been reconfigured in the past decade to increase their ability to process cheaper, heavier oil into gasoline and diesel.

It’s likely the company will retain control of its assets such as the refineries in Venezuela, said Mara Roberts, a New York-based analyst at BMI Research. The story is different when it comes to oil being exported, she said.

“Oil tankers could also potentially be at risk, with those carrying Venezuelan crude likely to face attachment claims upon arrival,” Roberts said by e-mail. “This could discourage take up of PDVSA’s shipments.”

While supply to the U.S. may be at stake, the same may not happen to other buyers including China, which has loaned some $45 billion to Venezuela in the past decade in return for repayment in oil. In the case of China, creditors would have a hard time seizing cargoes, as the oil changes ownership when it’s put on tankers, Aristizabal said. China charters the ships, and PDVSA repays the loans by loading the vessels.

“Once the crude is on board, it belongs to the buyer,” he said. “Because of the way the contracts were written, it would be very hard to have any claims on the oil.”

China imported 298,247 barrels a day of oil from Venezuela last year, up 16 percent from 2014, Chinese customs data show. The U.S., China and India are the main buyers of Venezuelan crude, according to data compiled by Bloomberg.

Oil Production

Venezuela’s production could still rebound amid a credit default scenario if recently announced investments from Repsol SA and drilling companies materialize, Roberts said. Earlier this month, PDVSA signed a $1.2 billion deal with Repsol to increase output at the Petroquiriquire project, and also announced last month investments of $3.2 billion to drill 480 wells and add 250,000 barrels a day of new oil.

“Output is unlikely to improve until some of the financing and oilfield service-related agreements signed in recent weeks begin to take effect,” she said. “But if the investments don’t follow through, we are going to see further declines of output and exports would be at risk as well.”

Attached Files

OPEC Annual Statistical Bulletin

The 51st edition of the Annual Statistical Bulletin (ASB).

This is one of OPEC’s principal publications. Since the very first edition, published in 1965, the ASB has been a useful — and frequently cited — reference tool for academics and researchers, policy-makers and analysts, and many others working in the energy industry.

The primary purpose of the ASB is to make reliable data about the global oil and gas industry easily and publicly available. It thus functions as an important source of data for all of the different stakeholders in the oil industry, while also ensuring greater data-sharing and data transparency about the industry and its many actors.

This has long been one of the Organization’s objectives. The ASB focuses on OPEC’s current 13 Member Countries — Algeria, Angola, Ecuador, Indonesia, Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela (the 52nd edition of the ASB will include data of Gabon) — and their National Oil Companies.

It also provides statistical data and important information about non-OPEC oil producing countries, bringing together useful data on exports and imports, production, refineries, pipelines and shipping. As in previous years, the 2016 ASB is available in a print edition, as a PDF file and in an interactive online version. The latter version — which includes historical time-series data going back to 1960 — is available on the OPEC website.

The ASB is the result of close collaboration between the OPEC Secretariat and OPEC’s Member Countries. It is only through these efforts that the Organization is able to fulfill its commitment to enhancing data transparency and supporting market stability. I therefore would like to thank Secretariat staff, and our colleagues and officials in our Member Countries, for their hard work and valuable input.

China diesel, gasoline exports rise again in Sept-customs

China's diesel and gasoline exports jumped again in September from a year earlier, customs data showed on Friday, as the world's top energy market continued to look to international markets to sell its domestic fuel excess.

Reliance, controlled by India's richest man, Mukesh Ambani, said its fiscal second-quarter profit was 72.06 billion rupees ($1.1 billion) for the quarter to Sept. 30. That roughly matched analysts' estimates of 72.2 billion rupees, and was well above its year-ago profit of 50.35 billion rupees on the same basis.

On a net basis, the country's largest refiner reported a 23 percent drop in its quarterly profit, as its year-ago profit was boosted by a 45.74 billion rupee gain from an asset sale.

It said gross refining margin, or profit earned on each barrel of crude processed -- a key profitability gauge for a refiner -- came in at $10.1 per barrel for the three months to Sept. 30, accelerating its lead over the regional benchmark Singapore GRM.

A senior company executive defended the refining margins saying they could be sustained.

"These are not one quarter numbers, the margins are improving consistently every quarter," said V. Srikanth, joint chief financial officer of Reliance.

Reliance operates the world's biggest refining complex in western India and analysts expect an upgrade currently underway to improve margins by $2 to $3.

The company's refinery upgrade plan is at "advanced stages of mechanical completion and pre-commissioning," said Ambani in a statement, adding this would further strengthen the company's position.

Fuel demand in India, the world's third-largest consumer, is rising fast as higher income levels and cheaper credit boost vehicle sales. The International Energy Agency estimates India's fuel demand will be 10 million barrels per day (bpd) by 2040.

Reliance gets 95 percent of its profit from oil refining and petrochemicals, but has been spending aggressively to expand in retail, telecoms and e-commerce.

Its Jio 4G telecoms unit has spent more than $20 billion to build a nationwide network that started commercial operations in September, reaching 16 million customers in the first month. Reliance Jio is giving telecoms services free until the end of the year, triggering a price war among rivals.

Jio is adding about half a million subscribers a day, Anshuman Thakur, head of strategy, told reporters on Thursday.

For the September quarter, Reliance's revenue rose 9.6 percent from a year earlier to 816.51 billion rupees.

Its outstanding debt rose to 1.89 trillion rupees as of end-September, while it had 825.33 billion rupees of cash and cash equivalent, it said.

Skangas awarded framework agreement with Statoil

Skangas has entered into an agreement with Statoil for delivery of liquefied natural gas (LNG) fuel for their platform supply vessels (PSV). The LNG will be delivered to several bases along the Norwegian west coast by ship.

Skangas will in addition deliver LNG to Statoil’s tugs at Kårstø. The agreement is valid from 1 April 2017 until the end of 2020 with an option for two plus two years. The supply bases are located at Mongstad, Florø (Saga Fjordbase) and Kristiansund (Vestbase). The agreement between Statoil and Skangas was a result of a comprehensive tendering process involving several LNG suppliers in the Norwegian market.

“We see this agreement as a recognition of our daily work and a confirmation of a good relationship with Statoil”, says Tor Morten Osmundsen, CEO of Skangas. “It is important to have customers that emphasize the necessity of more sustainable operations enabling the use of a more environmentally friendly energy. We are depending on front runners to develop the market for LNG and further for liquefied biogas (LBG)”.

BUILDING SHIP FOR THE FUTURE

The LNG will be delivered from the LNG plant in Risavika to the supply bases along the Norwegian coast by Skangas’ new LNG feeder and bunker ship Coralius. The design of the 5800 m3Coralius has been optimized for safe and reliable bunkering operations and is expected to be available Spring 2017. Supplying LNG by ship is supporting the Norwegian initiative to move transportation of goods from the roads to the sea.

LNG is the most environmentally friendly shipping fuel and meets the requirements set by the Sulphur Directive for shipping as well as the stricter future limits set for emissions such as NOx, particulates and CO2. Consequently, by using LNG for supply vessels Skangas’ customer is experiencing considerably less emission than when using other fossil fuels. Skangas is helping their customer to reach their goals of being the most carbon effective company.

Attached Files

Keppel Sees More Job Cuts After Profit Slumps 38% on Weak Oil

Keppel Corp., which has already eliminated more than a quarter of its workforce this year, said "painful measures" and job cuts will continue as profit at the world’s biggest oil-rig builder drops.

Senior managers at the Singapore-based company have taken a cut in their monthly pay and directors will propose lower fees, Keppel said in a stock exchange statement Thursday. Keppel, which also builds properties, slashed workforce at its offshore and marine business 26 percent, or about 8,000 jobs, in the nine months through September.

Oil-rig makers like Keppel and its closest rival Sembcorp Marine Ltd. and ship builders have fired thousands of workers in the past two years and are planning more cuts amid weak demand for equipment to explore and transport oil. Companies in the oil and natural gas sector have slashed more than 350,000 jobs since crude prices started to fall in 2014 and explorers slashed hundreds of billions of dollars in investment to weather the rout.

"Given that our expectations are that the market is going to be slow for the foreseeable future, we have to continue to rightsize," Keppel Chief Executive Officer Loh Chin Hua said Thursday. "We have been relying on natural attrition until now. So going forward, we have to look at ending contracts a bit earlier and possibly look at retrenchment."

For a story on job losses at Singapore’s oil & gas sector, click here.

Shares of Keppel rose 0.4 to close at S$5.44 in Singapore before the earnings announcement. The stock has fallen 16 percent this year, the second-worst performer on the 30-member Straits Times Index.

Keppel’s comments came after the company Thursday reported third-quarter net income dropped 38 percent on year to S$224.5 million ($162 million), mainly because of the difficulties at its offshore and marine sector.

Profit at the real-estate business of Keppel jumped 23 percent to S$157 million, according to a statement to the stock exchange. The offshore marine unit’s net income tumbled 93 percent to S$11 million.

Keppel is looking at cutting yard capacity by scrapping some facilities, Keppel Offshore & Marine CEO Chow Yew Yuen said in a post-earnings webcast Thursday. The company is on track to deliver four more projects in the current quarter and Keppel received no deferment requests last quarter, he said.

Keppel has also been hit by non-payment by one of its biggest clients, Sete Brasil Participacoes SA, which filed for bankruptcy protection in April. A provision of S$230 million it made earlier is “adequate,” Keppel said Thursday.

Demand in the offshore and marine market will remain tepid despite a recovery in oil to above $50 a barrel because of oversupply, Loh said.

“Rightsizing of our offshore and marine business will continue as we prepare for an extended period of weaker demand for new oil rigs,” Loh said. “Our aim has always been to emerge from this downturn stronger.”

Tanker Rates Surge as Mideast Cargoes Rise Before OPEC Deal

Oil tanker rates jumped to a four-month high as traders booked the most cargoes for the time of year on record, offering signs that Middle East producers could be adding barrels to the market just before OPEC embarks on its deepest output cuts in eight years.

Day rates on shipments from the Middle East to Asia jumped to $47,479 while a surplus of crude tankers in the Persian Gulf matched the lowest level in a year, Baltic Exchange and Bloomberg surveys showed. Traders booked the most one-off, or spot, cargoes for the month of October in at least 12 years, according Galbraith’s Ltd., a London-based shipbroker.

“The suspicion is that there’s an extraordinarily high output from the Middle East ahead of the expected cut decision in November,” Erik Stavseth, an analyst at Arctic Securities AS in Oslo covering shipping companies, said in a phone interview. “We see increased exports from Iran, Iraq, Saudi Arabia, Kuwait and also U.A.E.”

Tanker companies are benefiting from a rare confluence of events boosting the global supply of crude before the Organization of Petroleum Exporting Countries prepares to cut output to steady markets. In addition to increased Middle Eastern production, Russia is pumping post-Soviet era record volumes, Libya and Nigeria are boosting exports, and the U.S. is returning to the global market in full for the first time in four decades.

The 141 cargoes that traders booked are the highest for an October in at least 12 years and the most for any single month since March, Galbraith’s data show. The shipments only capture part of the market because traders also ship oil on vessels booked on long-term charters.

At talks last month in Algiers, OPEC agreed to curb output to an average 32.5 million to 33 million barrels of crude a day. The 14-nation group in September pumped 33.39 million barrels a day, according to OPEC’s own survey of secondary sources. Each country’s allocation hasn’t been finalized, though the building blocks of the accord will be in place by the group’s November 30 meeting, OPEC Secretary-General Mohammed Barkindo said at an oil conference in London Tuesday.

Iraq, Kuwait

Crude exports from Kuwait and Iraq both rose in August from July, according to the Joint Organisations Data Initiative in Riyadh. While Saudi Arabia’s fell 4.2 percent to 7.31 million barrels a day, a better measure is the annual change because the country burns more crude in summer for power generation. They climbed year on year. Iran, OPEC’s third largest member, plans to increase production to 4 million barrels a day this year, from 3.89 million a day currently, according to the National Iranian Oil Co.

The excess supply has been a boon for companies owning crude tankers. Benchmark tanker rates to Japan from the Middle East rose for the 17th session Tuesday, according to Baltic Exchange data. The $47,479 a day they are earning is the highest since June 9. On Sept. 27, the day before OPEC committed in Algiers to restraining supplies, the daily rate for the vessels was $14,779.

Increased export activity in the Middle East and West Africa “could be enough to push rates further north,” analysts at ABN AMRO Capital Markets Solutions said in a research note Wednesday.

Analysts surveyed by Bloomberg are anticipating rates of $35,000 a day for the ships in 2017. That would make them profitable for a fourth consecutive year, according to estimates gathered by Bloomberg and cash-break even data from Bermuda-based Frontline Ltd., one of the largest operators. Part of their bullishness is because if OPEC does cut output, increases from Nigeria and Libya could boost demand for long-distance cargoes.

“For tankers we see limited impact from OPEC’s decision to limit output,” said Jonathan Staubo, an analyst at Fearnley Securities AS in Oslo. “As the proposed cuts allow for a recovery of output in Nigeria and Libya, we could now see the Atlantic regaining some momentum which is positive from a ton-mile perspective.”

Attached Files

PetroChina Said to Mull Raising Gas Prices as NDRC Urges Supply

PetroChina Co. is considering raising non-residential natural gas prices, while China’s top economic planner has urged major suppliers to raise output, as the country seeks to avoid shortages during the peak winter season.

The country’s biggest gas producer and distributor plans to boost prices for industrial and commercial users from as soon as Nov. 20, the earliest possible date it’s allowed to under regulations issued by the National Development and Reform Commission, according to people with knowledge of the plan. PetroChina plans to raise prices by between 10 percent and 20 percent, the people said, asking not to be named as the information isn’t public.

Separately on Thursday, the NDRC called on China’s major natural gas producers, including China National Petroleum Corp., China Petrochemical Corp. and China National Offshore Oil Corp., to increase output to alleviate tight supplies in the north and northwest regions, according to a statement published on its website. CNPC is PetroChina’s state-owned parent.

Winter shortages have become a concern in northern China, where the government has been encouraging the use of gas instead of coal for heating to reduce pollution, according to Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong.

Winter Tightness

“The price hike can help alleviate the gas supply situation a bit for the peak season by limiting some industrial gas consumption,” Yu said. “The price hike will help PetroChina’s gas margin in the short term, but it will be hard to keep prices high when the weather turns warmer.”

PetroChina’s planned price increase is partially designed to alleviate gas shortages in the northern provinces, where PetroChina expects to see tight supplies because of high winter-heating demand, said the people. The company didn’t respond to requests for comment.

China’s natural-gas imports surged to a record last month. China imported 5.73 million metric tons of the fuel in September, the General Administration of Customs said earlier this month. That’s up more than 70 percent from both August and the same month last year.

Northern China experienced the lowest temperatures in 64 yearslast year and Beijing officials ordered offices to cut heating to as low as 14 degrees Celsius (57 degrees Fahrenheit) in response to a natural-gas shortage.

PetroChina shares jumped as much as 3.9 percent in Hong Kong, after Chinese newspaper 21st Century Business Herald reportedthe news on Thursday, citing unidentified people.]

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Indonesia sees 63 uncommitted LNG cargoes in 2017

There are currently 63 uncommitted cargoes of liquefied natural gas (LNG) for 2017 delivery from Indonesia's Tangguh and Bontang projects, Wiratmaja Puja, the country's Director General of Oil and Gas, said on Thursday.

"We want these to be sold to committed buyers," Puja said, noting deals for 13 of the cargoes were currently being negotiated.

"It would be real pity if we had to cut production."

In 2018, there were still "more than 60" uncommitted cargoes, he said. "We are still oversupplied."

Attached Files

Nigeria Cuts Oil Prices, Sees ‘Huge Cargo Overhang’ in Market

Nigeria cut the price of every type of crude it sells in an effort to regain share of the global oil market share at a time when there’s a “huge” glut of cargoes.

Nigeria National Petroleum Corp. lowered by at least $1 a barrel its official selling prices, or OSPs, for 20 out of 26 oil grades monitored by Bloomberg, according to pricing lists. Qua Iboe, Nigeria’s largest export crude under normal circumstances, was reduced by the most since 2014.

The price reductions are due to a “huge cargo overhang” as the country attempts to regain market share, Mele Kyari, group general manager for the oil-marketing division at NNPC, the state oil company, said by phone.

Like every other producer country, Nigeria is grappling with prices that are less than half what they were in July 2014. What makes the African nation’s situation more acute is a militant campaign that resulted in export flows falling to the lowest in at least 9 years earlier this year. Shipments are gradually resuming, and lower prices are a sign Nigeria is seeking to become more competitive in an already oversupplied global market.

“It is a bearish signal for the light, sweet market,” Eshan Ul-Haq, principal consultant at KBC Process Technology Ltd., said in an e-mail, referencing the types of crude Nigeria mostly pumps. “In order to capture a higher share of the market, OSPs have to come down.”

NNPC cut the selling price of Qua Iboe to a 17 cent premium to the benchmark Dated Brent, according to the price list, from $1.07. It reduced the price of Bonny Light to a 7 cent premium and Forcados to a 41 cent discount to Dated Brent.

High Prices

Five companies that market the nation’s crude have raised the issue of high official selling prices, Kyari said earlier this week. He said Thursday that the pricing decisions were unrelated to those “complaints.”

The reductions take place as the Organization of Petroleum Exporting Countries -- of which Nigeria is a member -- attempts to cut its combined output to 32.5 million to 33 million barrels a day in an effort to steady oil markets. Nigeria has said it will be exempt from any production cuts, though final details of such an agreement have yet to be worked out.

Because an OPEC output cut would primarily affect medium and heavy crude grades, lower prices from Nigeria are likely to reduce the price differential between light and heavier oil, according to Ul-Haq.

Attached Files

Japan eyes acquisitions of foreign E&P firms to boost equity output

The Japanese government is looking to give financial support to acquisitions of foreign upstream companies by domestic oil companies for the first time ever as part of its efforts to boost the country's equity oil and gas output, a senior government official said.

The current low oil price environment has created "a significant opportunity for acquiring [upstream] stakes and assets" and there was also a need to facilitate upstream spending because of slowing global investment, director of the oil and gas division at the Ministry of Economy, Trade and Industry Yuki Sadamitsu said in an interview with S&P Global Platts on Friday.

This also offered a window of opportunity to help develop Japan's core upstream companies by helping them take stakes in oil and gas assets via acquisitions of foreign independent E&P companies, Sadamitu said.

EXPANSION OF JOGMEC'S CAPABILITIES

The Japanese cabinet recently approved a bill to amend a part of the law that defines the capabilities of state-owned Japan Oil, Gas and Metals National Corp. (Jogmec).

The government is hoping to obtain parliamentary approval for the bill before the end of the current Diet session at the end of November.

Following enactment of the bill with immediate effect, Jogmec's capabilities are set to expand beyond simply acquiring stakes in exploration projects and financially supporting domestic companies' participation in exploration projects.

Jogmec will be able to support domestic companies' acquisitions of foreign upstream firms and their capital tie-up.

It will be able to provide companies additional financial support through the development stage of their projects. Jogmec currently does not provide any finance to Japanese companies' projects that are at the development stage, except for providing loan guarantees for the companies' development costs.

Jogmec will also be able to acquire shares in state-owned national oil companies.

Jogmec will have a framework to borrow up to Yen 324.8 billion ($3.12 billion) from commercial banks in a fiscal year (April-March) with a government debt guarantee to support Japanese companies' acquisitions and upstream developments from the exploration stage through to the development stage.

Sadamitsu said Jogmec's new capability to provide financial support for Japanese companies' acquisitions of foreign upstream companies and capital tie-up was a key highlight of the amendments.

Asked about Jogmec's rationale for acquiring shares in foreign state-owned national oil companies, Sadamitsu said that the move was meant to establish medium- to long-term partnerships and help Japanese companies acquire upstream assets in those countries, Sadamitsu said.

Acquiring upstream stakes for domestic oil companies would be the main driving force behind Jogmec taking a stake in a foreign national oil company, he added.

POSSIBLE ACTION IN 2016-17

In a related development, METI has also secured a supplementary budget of Yen 162.4 billion for the upstream oil and gas sector in fiscal 2016-17, with Yen 150 billion earmarked to support Japanese companies' acquisition of foreign upstream companies.

"We are hearing that various Japanese upstream companies are exploring specific projects," Sadamitsu said, adding that the supplementary budget reflected this.

The supplementary budget combined with the previously approved Yen 92 billion budget and ability to borrow Yen 324.8 billion once the bill is ratified will take Jogmec's maximum finance available in the current fiscal year to Yen 579.2 billion.

While various projects are currently being studied by Japanese companies, "there is a reasonable chance that this much money can be invested in the current fiscal year," Sadamitsu said, adding that this budget did not have to be used within the fiscal year.

Japan hosted the Group of Seven industrialized nations summit in May when the leaders committed to play a leading role in facilitating upstream investment to stabilize energy prices and ensure economic growth.

Japan aims to increase its share of oil and gas equity liftings to 40% by 2030 from 27.2% in fiscal 2015-16.

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Venezuela congressional probe says $11 billion missing at PDVSA

A report by a Venezuelan congressional commission accused Petroleos de Venezuela (PDVSA) [PDVSA.UL] of corruption on Wednesday, saying about $11 billion in funds went missing from the state-run oil company while Rafael Ramirez was at the helm from 2004-14.

"It is more than the (annual) budget of five Central American countries," said Freddy Guevara, comptroller commission president and a member of one of Venezuela's hardline opposition parties, alleging widespread malfeasance at the state oil producer.

"We're talking about $11 billion they cannot justify," he added, as he presented a report by the legislative body that audits the state.

PDVSA, which manages the world's largest oil reserves, brings in about 95 percent of Venezuela's export revenues and has been the country's financial engine during 17 years of leftist rule in the OPEC member nation.

Critics have long accused PDVSA of corruption, but the company has maintained it is the target of a right-wing smear campaign, led by the United States and compliant international media, to sabotage socialism.

Neither PDVSA nor Ramirez, currently Venezuela's United Nations envoy, responded immediately to requests for comment on the report by the commission headed by Guevara.

Venezuela is engulfed in a protracted economic crisis exacerbated since 2014 by a sharp decline in world oil prices.

Raising the specter of default, cash-strapped PDVSA said on Monday it "could be difficult" to pay large looming debt commitments if a proposed $5.3 billion bond swap does not go through.

"If PDVSA is unable to pay its international creditors ... it is because they robbed this money," said Guevara, a former student leader and member of the Popular Will Party. As he addressed his fellow lawmakers, he flicked between slides illustrating what he described as various cases of wrongdoing at PDVSA, repeating: "Where is the money?"

MULTIPLE CASES

The congressional investigation focuses on 11 cases, ranging from known scandals in an Andorran bank and PDVSA pension funds to alleged overpricing in purchases of oil equipment.

The accusations are based in part on documents from PDVSA, auditor KPMG [KPMG.UL] and foreign investigations.

Interviews with a KPMG representative showed the company had informed PDVSA's auditing committee of "frauds," the report said.

"The representatives of PDVSA had FULL KNOWLEDGE of the existence of administrative irregularities," the report reads, adding KPMG has not provided further details, citing confidentiality policies.

The U.S. Justice Department has said there is a large, ongoing investigation into bribery at PDVSA.

In the most high-profile case to date, a Venezuelan businessman pleaded guilty in a U.S. court in June to violating the Foreign Corrupt Practices Act for his role in a scheme involving PDVSA officials. U.S. authorities have linked more than $1 billion to the scheme.

In the Andorran case, the United States alleged last year that a bank there had facilitated the laundering of $4.2 billion of Venezuelan money.

In addition to the 11 cases documented in the report, Guevara told Reuters the commission was currently investigating another six.

One slide displayed by Guevara titled "Those involved," showed dozens of arrows pointing at Ramirez, who served as Venezuela's oil czar for a decade before being sent to the U.N.

The commission called on the National Assembly to deem Ramirez "politically responsible" for the irregularities and recommended a "no-confidence vote" against current PDVSA President Eulogio Del Pino.

"We're seeking lawsuits - criminal and civil - against all those involved here," Guevara said, adding he had not received any official reply from PDVSA or its current and former executives.

The investigation may have little impact, however, as President Nicolas Maduro's government has sidelined Congress since the opposition won control in a December vote and the Supreme Court has annulled all its major decisions.

Ruling Socialist Party lawmakers did not attend Wednesday's session, where the commission approved the report.

PDVSA's Del Pino has in recent weeks accused media and opponents of inventing lies about the company. He personally filed a lawsuit for defamation against one Venezuelan newspaper after it said PDVSA was in financial trouble.

As a result, Woodside narrowed its forecast for full-year production to 92-95 mmboe, tweaking up the bottom end of the range.

Output in the September quarter rose to 25.2 million barrels of oil equivalent (mmboe) from 22.2 mmboe in the June quarter, due to record output at the Karratha gas plant and the Pluto liquefied natural gas (LNG) operation.

Two analysts had expected production of around 23.5 mmboe.

Revenue rose to $988 million, in line with the two analysts' forecasts, as oil and gas prices improved.

The environment for getting deals done in oil and gas is better now than it was a year ago as sellers have lowered their expectations, Woodside Petroleum's Chief Financial Officer Lawrie Tremaine said on Thursday.

Woodside, Australia's biggest independent oil and gas producer, has announced two deals over the past four months together worth up to $830 million, picking up stakes in a major oil find off Senegal and undeveloped gas fields off Australia.

It is working on more deals within the $1 billion range, Tremaine said.

ICF Predicts Marcellus/Utica Gas Will Double by 2025!

You just can’t get away from the Marcellus/Utica–even at a conference supposedly focused on the Western U.S. Natural gas infrastructure was a key topic at the recent LDC Gas Forum Rockies & West conference held in Denver, CO.

ICF International vice president Kevin Petak was one of the speakers. He dropped what is (to us) a bombshell when he said he believes the Marcellus and Utica combined will pump out 40 billion cubic feet per day (Bcf/d) by 2025–just 10 short years from now.

The two plays combined today are pumping around 21 Bcf/d–so Petak is predicting our output will double! If that’s so, there will need to be a whole lotta drillin’ goin’ on between now and then.

In addition to Petak, Crystal Heter, vice president for commercial operations at the Rockies Express (REX) pipeline, had some VERY interesting things to say about the REX pipeline reversal which sends Marcellus/Utica gas to the Midwest. It looks like even more gas is about to go from our area westward…

Attached Files

Summary of Weekly Petroleum Data for the Week Ending October 14, 2016

U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ending October 14, 2016, 182,000 barrels per day less than the previous week’s average. Refineries operated at 85.0% of their operable capacity last week. Gasoline production decreased last week, averaging 9.5 million barrels per day. Distillate fuel production increased last week, averaging 4.6 million barrels per day.

U.S. crude oil imports averaged 6.9 million barrels per day last week, down by 954,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.6 million barrels per day, 3.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 871,000 barrels per day. Distillate fuel imports averaged 32,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.2 million barrels from the previous week. At 468.7 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.2 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 1.2 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 3.6 million barrels last week.

Total products supplied over the last four-week period averaged about 20.1 million barrels per day, up by 3.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, up by 0.2% from the same period last year. Distillate fuel product supplied averaged about 4.0 million barrels per day over the last four weeks, up by 3.3% from the same period last year. Jet fuel product supplied is up 6.5% compared to the same four-week period last year.

Iran Talking With 16 Investors to Bid on Oil and Gas Projects

Iran is negotiating with 16 international energy companies to help operate and manage 50 oil and natural gas projects around the country to boost production after years of international sanctions.

The projects are feasible even with oil at $40 a barrel, Gholam-Reza Manouchehri, a deputy director of the National Iranian Oil Co., told reporters in Tehran on Wednesday. The South Azadegan field on Iran’s southwestern border will be the first deal announced, and probably needs $10 billion to add 600,000 barrels a day of output, he said.

“We have a lot of companies approaching NIOC,” Manouchehri said. “I’m not sure when we’ll sign the first contract. I hope it will be earlier” than a year from now.

Iran is recovering from sanctions that strangled its economy and choked off investment in its oil and gas industry. An easing of sanctions in January has allowed the country to ramp up oil exports, to 2 million barrels a day in July from 1.4 million at the end of last year, Joint Organisations Data Initiative data show. Brent crude, the international benchmark, was trading at about $52 a barrel on Wednesday.

$200 Billion

The Persian Gulf nation is seeking to boost production at oil and gas fields, and will need about $200 billion over the next four years for energy investments, according to figures provided by Iran’s Petroleum Minister Bijan Namdar Zanganeh on Tuesday.

The International Monetary Fund said Wednesday that economic conditions in Iran are improving and forecast growth of 4.5 percent this year compared with 0.4 percent in 2015.

Iran wants to produce about 4 million barrels of crude a day to regain its pre-sanctions share of the market, Zanganeh said Tuesday. Iran’s output was 3.63 million barrels a day in September, data compiled by Bloomberg show.

Qatargas signs LNG SPA with Petronas LNG UK

According to Reuters, Qatargas has signed a five-year LNG sales and purchase agreement (SPA) with Petronas LNG UK.

Under the agreement, Qatargas will deliver 1.1 million tpy of LNG to the UK-based company until 31 December 2023. This will extend a current five-year contract that was set to expire on 31 December 2018.

The LNG will be sourced from the Qatargas 4 joint venture (JV) between Shell and Qatar Petroleum. The cargoes will be delivered to the Dragon LNG terminal, which is located in Milford Haven, the UK.

Reuters reports that Qatargas, in an effort to deal with an impending worldwide gas glut, is looking to expand import deals with Europe’s most liquid markets, including Britain and the Netherlands.

Just Imagine OPEC Reduces Supply And Nobody Cares

OK, we got it by now. In an unfathomable show of splendor, OPEC has congregated in Algiers in order to show the world that it still matters and that finally, after a zillion attempts and a lot of trepidation (that's what it felt like at least) it will reduce the volume of crude it supplies into the market.

Nobody knows the exact inner workings of this deal (not even OPEC I suppose) but the traders got what they were waiting for, biting their fingernails to smithereens in the process and as could be expected, the oil price rose. A bit at least. Some dollars. Not really splashy but it was a noticeable rise - if you watch the market with a microscope. And a beer for the long, lonely moments. Or two.

Looking at the scale of the rise I have a feeling that the oil price had stronger spikes on news that the OPEC secretary general had a bad stomach from the last dinner party.

Frankly, this whole clues searching exercise often reminds me of some old witches reading the tea leaves. Or maybe the Kremlin watchers at the time of the once mighty Soviet Union. The merest hint of a sigh in the face of one of the Soviet leaders gave rise to endless speculation on new strategic decisions that will shape the fate of the world. Even the teenager - that I have been at this time - had understood quickly what quackery this all was.

However, OPEC's latest stunt sure can be no quackery. In the end, they will reduce supply and this will make the price rise - right? Saudis (which will most certainly need to bear the brunt of the cuts if they want them to stick) openly believe that the higher prices will compensate them for the shortfall resulting from lower volumes.

At the same time, I read in an issue of one of the best Austrian broadsheets (not really a place where one would expect outlandishly bold analysis) that the Chinese real estate bubble is hopelessly overstretched and that it must pop soon. Right under the China newsfeed comes a lengthy article on the troubles of Deutsche Bank (and the European banking sector as a whole with Italy transforming into a morass) and how it reminds some bank managers to the 2008 Lehman Brothers disaster. European banks are 900 billion EUROs in the red and I am not even scratching the surface of the big red Ponzi as it unfolds along the Yangtse river.Let's face it. We - as a planetary economy - are far away from having mastered the economic crisis that we became aware of in 2008 - I even think that compared to what is still to come, 2008 will look like the clumsy, nervous fumbling of a teenager making out. The economic and financial world order of the last 40 years is getting ready for the biggest RESET of human history and that will not go without pain - pain that will be felt in the oil world too.

However, let's no go into that right now. There are plenty of doomsayers out there (pick your favorite).

What's way more important - to me at the least - is what's going to happen to the energy world and its most cherished gambling chip, the oil price. Because the oil and gas world still waits for the goldilocks time to come back so they can fall back into bubble inducing slumber and central planning. This is what is really at the heart of all this brouhaha. No cost reduction, no reform, no fit for 50 or below. O&G companies loved the high price area and they want it back - please! Pretty please! With sugar on top!

O&G has ceased being a business in the entrepreneurial sense of the term a long ago. Seemingly eternal high prices have given rise to the numbers pushers, the quants, the technocrats, the system animals and squeezed those who pushed projects that would make economic sense out of the scene. Energy has become a monolith where evolution just happens on the paychecks.

I mean, has anyone looked at those CAPEX figures from some of the latest LNG projects? The sky is the limit - or it was and instead of working hard to get back to the 'we can do that better, cheaper and faster' way of things, numbers just climb through any ceiling anyone ever imagined. Instead of accepting some Australian projects (and others) as financial Black Holes that will never turn a profit, we sit and wait, hope, hanker for the old high prices times to come back. And the Aussie government wants to know why they are not making a green on LNG export. They must be joking. We are so over the top that we can't see our feet anymore.

It's like someone who has just been given crack shots for a year and then he tries pulling jackstraws. He will always hope for bigger sticks as fine finger movement has gone out of the window with the crack-bags. The only functional remedy will be to get off crack for long enough so controlled finger movement comes back. This will be no easy process and this is also true for O&G firms.

Getting ready for USD 50 is no replacement for 'Getting back to where we belong'.

Some of you will sigh now. Yes, I have beaten this horse to death but look at all this media craze at a simple announcement of an organization that has not really shown us that it means business for years now.

While on the other side many energy pundits seem to ignore the economic calamities opening up all around us. The world will have no choice but to scale back as a whole and much of the grossly inflated numbers bubbles will have to either be slowly deflated or they will pop and judging by all the bells and whistles that go off right now, there is a lot of market rebalancing coming at us at high velocity.

When that happens, demand figures for oil will collapse to more sustainable levels (there will be a negative peak even as those things tend to cause short-term panic) and the world will wake up to ever greater stockpiles of something that nobody needs anymore. Does anyone know reliable figures on North American oil in storage, or what the Chinese tin pots are up to, or when Indian and Chinese strategic storage filling will cease, or... Where will that all send the oil price? Go figure.

What will that do to the oil world? The O&G-alternate-reality-bubbles have survived so far - most of them - in the heads of O&G executives as well as in oil ministries of oil exporting countries. O&G companies and their managers have taken some measures to mask their plight from the outside world but in reality, they just hold their breath and patch-up with short-term measures, hoping the storm blows over. If they had - instead - reformed their companies for real, they would not care what a bunch of 'out-of-touch-with-reality' dudes does in Algiers. Or indeed what they might be up to later on.

They would not have any time for navel gazing as the world needs O&G - but only if O&G can adapt and service today's requirements. Not yesterday's numbers-games.

Attached Files

Another quarter of weak results looms for U.S. refiners

U.S. independent refiners such as PBF Energy (PBF.N) and Phillips 66 (PSX.N) are expected to report another quarter of disappointing profits in coming weeks, as hopes that a record summer driving season would turn the industry's fortunes around do not appear to have materialized.

U.S. refiners are in the midst of their worst year since the shale boom began in 2011. High fuel inventories have punished margins this year, forcing some refiners to voluntarily cut production, delay capital work, lay off workers and slash employee benefits.

With margins expected to remain under pressure, relief is not coming anytime soon, analysts say. Overall supply levels are still elevated, and the cost to meet U.S. renewable fuel standards will drag on profits for the remainder of the year.

Earnings expectations have been falling over the last month for an index of nine independent refiners that are part of the S&P 500. Over the last 30 days, the forecast for the third quarter has dropped by 3.8 percent on average, according to StarMine, a unit of Thomson Reuters.

"2016 is probably a lost year for the U.S. refining industry," Barclays analyst Paul Cheng said.

The benchmark U.S. crack spread <CL321-1=R, a key measure of margins, steadied in the third quarter, falling about 2 percent after crashing more than 22 percent in the second quarter.

Motorists hit U.S. roads in record numbers over the summer, but the demand was not enough to deplete the massive buildup in gasoline inventories that existed heading into the summer driving season. Those inventories - the result of overproduction last winter - hurt margins.

Heading into the winter, distillate stocks are at their highest seasonally since 2010. Refiners built up distillate stocks over the summer as they pushed their plants to pump out gasoline.

The U.S. refining industry has widely blamed its economic misfortunes on the country's renewable fuel program, which forces refiners to either blend biofuels like ethanol into their fuel pool or buy renewable fuel credits. The fuel credits, known as renewable identification numbers, or RINs, have jumped in price this year.

Delta Air Lines (DAL.N) opened the earnings season last week, reporting a $45 million loss at its Monroe Energy refinery for the third quarter, versus a $106 million profit a year ago. The company is expecting the refinery to lose more than $100 million this year, versus more than $300 million in profits last year.

Delta, which does not have a blending operation and must buy credits for the fuel it produces, said it spent $48 million in the third quarter on RINs, nearly triple what it paid last year.

Another local refinery, Philadelphia Energy Solutions, blamed the rising cost of RINs for its decision to lay off up to 100 non-union employees and slash benefits. [nL1N1CG0U7]

In May, Marathon Petroleum (MPC.N) laid off 46 employees at its Galveston Bay refinery in Texas.

Standalone refineries like PES and Monroe will continue to struggle in the Northeast because they have little advantage over international rivals and face tougher environmental obligations at home, Sandy Fielden, director of research, commodities and energy at Morningstar in Austin, Texas, said in a report due Wednesday.

"U.S. refiner margins as a whole are lower in 2016 versus 2015 and Q4 is not likely to be different with higher crude prices and soft product prices due to higher inventories," he said.

The U.S. Energy Information Administration expects this winter to be about 18 percent colder than last year's historically mild season.

Exxon boss, Saudi minister differ on oil supply outlook

Exxon Mobil's boss Rex Tillerson and Saudi Arabia's energy minister on Wednesday took opposing views on declining investment in the oil sector setting the stage for a possible major supply crunch.

More than two years of downturn that saw oil prices halve to around $50 a barrel today after a boom in U.S. shale oil production have led to a sharp decline in investment.

But Tillerson, who heads the world's largest listed oil and gas company, said that shale oil producers' resilience in cutting costs to make some wells profitable at as low as $40 a barrel means that North American production has effectively become a swing producer that will be able to respond rapidly to any global supply shortage.

"I don't quite share the same view that others have that we are somehow on the edge of a precipice. I think because we have confirmed viability of very large resource base in North America… that serves as enormous spare capacity in the system," Tillerson told the Oil & Money conference.

"It doesn't take mega-project dollars and it can be brought on line much more quickly than a 3-4 year project," he said.

His stance contrasted with that of Saudi Arabia's Energy Minister Khalid al-Falih, who minutes earlier warned the same event that the sector faces challenges due to the drop in investment.

"Market forces are clearly working. After testing a period of sub $30 prices the fundamentals are improving and the market is clearly balancing," Falih said.

"On the supply side, non-OPEC supply growth has reversed into declines due to major cuts in upstream investments and the steepening of decline rates," the minister said.

"Without investment, that trend is likely to accelerate with the passage of time to the point that many analysts are now wending warning bells over future supply shortfalls and I am in that camp."

Falih said that OPEC's plan to freeze or even cut production along with several leading producing countries, including Russia, will help reduce a huge overhang of supplies and stimulate new investments in the sector.

Saudi Arabia, has changed its course this year and decided to support production cuts following two years of refusal to do this in order to win the market share back from U.S. shale producers.

Tillerson's remarks about the resilience of U.S. supply shone on a fresh light on Saudi calculations of the impact of lower prices, which Riyadh orchestrated in 2014, on the North American oil industry.

NO PRICE BLOW OUT

Tillerson said that while U.S. shale production has dropped recently, the declines have largely stopped.

"I don't necessarily agree with the premise that there is a more steep decline to come (in U.S. shale), in fact that are still some levels of uncompleted wells that can be brought on."

"It is difficult for me to see a big supply press out there, it is difficult for me to see a big price blow out, there are too many elements in the system that will temper that," Tillerson said.

"I don't necessarily have the view that we are setting ourselves up for a big crunch within the next 3, 4, 5 years."

Echoing the Saudi minister, Patrick Pouyanne, the chief executive officer of French oil and gas company Total, expected supplies to fall short by 5 to 10 million barrels per day by the end of the decade after investments in the sector dropped from $700 billion two years ago to $400 billion this year.

"We are today facing a situation where we do not invest enough... this is not enough to prepare the future supply… Without investment, the oil industry will not be able to offset the natural 5 percent natural decline of fields and meet demand growth of even 1 percent."

"I know that the shale oil industry is very innovative and they have cut costs and adapt but we won't be able, if we continue this way, to fill the gap," Pouyanne said.

He said that Total will be able to balance its capital spending of up to $17 billion with oil at $55 a barrel next year.

Low GCC gas prices 'unsustainable' says report

Maintaining the GCC’s low gas prices is unsustainable and will create significant problems for the region in the future, according to a recent study by management consultancy Strategy&.

While low GCC gas prices have supported local economies in the past, the cost of new gas production is set to rise significantly in the future.

According to Strategy&, average weighted costs of new gas production across the GCC could rise by a factor of one-third to two-thirds by 2030 as technology requirements necessary for accessing and successfully extracting gas becomes greater — from $1.50 to $4.50 per thousand cubic feet in 2015, to $2.00 to $7.00 per thousand cubic feet in 2030.

Developing new sources of gas production is therefore not sustainable at current prices which are typically significantly below this level and, if not addressed, will lead to a potential gas supply gap of over 300bn cubic meters by 2030.

George Sarraf, partner with Strategy&, said: “If the cost of gas does not start to reflect its true market value and appropriate investment in the oil and gas sector is not allocated soon, the GCC will be unable to meet demand for gas in the future.

"Reforms should define a mechanism that prices natural gas closer to its true value and that in some manner reflects the global and regional dynamics of supply and demand.

"While abundant and cheap gas has played a critical role in the development and diversification of GCC economies, the current system is not sustainable."

The best approach to setting gas prices is to use market mechanisms such as “oil indexation” and “gas hub pricing.”

Oil indexation requires gas prices to be linked to a basket of commodities including crude oil and oil products.

Gas hub pricing, also known as “gas-to-gas competition,” is when gas is traded based on spot prices set by the market in a liquid trading hub to better reflect the true price of gas to consumers.

According to David Branson, an executive advisor with Strategy& in Dubai and a member of the energy, chemicals and utilities practice in the Middle East, “Many markets around the world are becoming increasingly liberalized and are gradually moving from oil indexation to gas hub pricing as the preferred pricing method.

"In 2014, 43% of all gas sold was subject to gas hub pricing and 17% was indexed to oil. However, the Middle East is yet to adopt market-based gas pricing with almost all prices regulated by national governments.”

The first is to increase wholesale prices to match – at a minimum – the increasing production costs and encourage investments in new supply sources.

The second is by indexing gas prices to oil prices. Another viable option would be to link domestic gas prices to prices in existing hubs in other geographies, and lastly to establish a dedicated GCC gas hub price.

Dr Yahya Anouti, principal with Strategy& in Dubai and a member of the energy, chemicals and utilities practice in the Middle East, commented: “The time to act is now and some countries have already taken steps in this direction but more is needed to advance this vital reform across the region.

"Although a new regime will result in higher gas prices, carefully crafted mitigation measures can help with the transition.

"These will allow the economy as a whole to benefit from increased diversification, private investments, true competition and a greater sense of energy security."

As a consequence of a new pricing regime, Startegy& warns of the possibility for a gas price increase to have an adverse socioeconomic impact on consumers unless managed carefully.

The impact of a new potential gas-pricing mechanism therefore requires proactive and targeted risk mitigation measures to ensure that the benefits of the new pricing model are captured, the consultancy said.

According to Strategy&, GCC countries need to proactively communicate with all key stakeholders to evaluate potential risks of higher gas prices and offer appropriate solutions.

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IMF Sees Saudi Break-Even Oil Price Falling Less Than Expected

The average oil price that Saudi Arabia needs to balance its budget will fall this year by only half as much as forecast six months ago, according to the International Monetary Fund.

The country’s fiscal break-even price will drop to $79.70 a barrel this year from $92.90 in 2015, the IMF said on Wednesday, a fall of 14 percent. In April, the IMF projected that the Saudi break-even price would decrease by 30 percent this year, to $66.70 a barrel from $94.80.

The new numbers, released ahead of Saudi Arabia’s first-everinternational bond sale, suggest that the government’s efforts to cut costs and diversify its economy away from petroleum are having less of an effect than the IMF forecast previously. Saudi Arabia generates more than 80 percent of its official revenue from oil, according to a World Bank report in July.

The IMF’s revised projection could also help to explain why Saudi Arabia supported an OPEC deal last month in Algiers that will effectively force it to cut production to support oil prices, even though its regional rival Iran will be exempt from capping its output. In April, Saudi Arabia vetoed a proposed production freeze after Iran refused to take part.

Iran’s break-even price for this year will be $55.30, the IMF said, down from $60.10 in 2015. That’s lower than the $61.50 the IMF forecast for Iran in April, and much less than the fund’s revised break-even price for Saudi Arabia, showing how Iran’s more diversified economy has given it an edge over the kingdom.

Both countries will be hard-pressed to balance their budgets this year. Benchmark Brent crude has averaged less than $45 a barrel in 2016 and was trading at about $52 in London on Wednesday.

Rapid Permian Rig Rebound Driven by Deep Bench of Low Breakeven Wells

As Q3 results soon rollout, with many first looks toward 2017, we are reminded of the longer term value proposition: namely that capital can be invested with returns above the marginal cost of debt. Genscape currently analyzes over 250 individual company play breakevens, defined as NPV > 0 at 10 percent cost of capital, covering substantially all of the United States horizontal drilling. In the Permian, we cover 24 companies and 42 company plays, and find an average breakeven of $36-$39.

The horizontal rig count in the Permian has rebounded 49 percent from its May low adding 57 rigs (now down 51 percent verses year ending 2014), while the Eagle Ford has only recovered two rigs (now down 84 percent from year ending 2014). This does not come as much of a surprise to us, as the Permian has been a magnet for M&A activity this year – over eight billion dollars in deal value during Q3 alone, driven by relatively low breakevens, a diverse set of operators, and a deep inventory of future drilling locations.

Turning to the financials of Permian companies, over the past 10 quarters, the market has punished those whose debt increased relative to production levels. Companies that have grown production and kept debt down have been rewarded. Diamondback, Callon, and RSP Permian, have demonstrated the ability to improve debt and production metrics, which unsurprisingly rank favorably in our economics report verses many of their peers.

Oil prices have ticked significantly higher in the past couple of weeks on hopes that OPEC will announce a production cut at next month’s meeting. With the Q3 earnings season on the horizon, we expect announcements of companies putting even more rigs back to work. Now this clearly does not mean every company will benefit to the same degree as the range of breakeven prices and well results are disparate, and even in the Permian there are some company type curves that do not breakeven until reaching $60 or more.

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Russia's Gazprom Neft CEO says could slow oil output growth

Gazprom Neft, the oil arm of Russian state gas firm Gazprom, could slow its oil output growth compared with the current plan if needed, its Chief Executive Alexander Dyukov told Rossiya 24 TV.

Gazprom Neft said earlier this month it was not ready to cut output and had not been asked to do so as the Organization of the Petroleum Exporting Countries (OPEC) tries to flesh out the details of a plan to cap global oil production.

"If we talk about Gazprom Neft, then there is of course a technical possibility to reduce or stabilise production," Dyukov said in an interview broadcast on Tuesday.

OPEC last month agreed on a modest production cap. Details of how it can be done by the group's members, and non-OPEC producers like Russia which may join the process, are expected to become clearer towards the end of November.

The Russian government has said that it was talking to domestic oil companies about the OPEC proposals.

According to Dyukov, "temporary output stabilisation" is being discussed now but it would be an uneasy step for Gazprom Neft as it planned to continue raising its production in 2017-2019.

"If one takes a look at the Russian industry, some companies are raising output, some of them are reducing it, and we hope that altogether everything can end up that we somewhat reduce pace of the production growth, but, however, manage to keep a small production growth."

Oil rises on U.S. crude inventory draw, falling Chinese output

Oil prices rose on Wednesday, lifted by a report of a drop in U.S. crude inventories and declining production in China, while an upbeat OPEC statement on its planned output cut also supported the market.

U.S. West Texas Intermediate (WTI) crude oil futures were trading at $50.73 per barrel at 0326 GMT, up 44 cents, or 0.87 percent, from their last settlement.

International Brent crude futures were at $52.14 a barrel, up 46 cents, or 0.89 percent.

"The American Petroleum Institute crude inventory numbers were released ... this has given early Asian trading a bullish start," said Jeffrey Halley, senior market analyst at OANDA in Singapore.

U.S. crude stockpiles fell 3.8 million barrels in the week to Oct. 14, to 467.1 million barrels, the API reported late on Tuesday.

The U.S. Energy Information Administration (EIA) is due to release official crude and fuel storage data later on Wednesday.

Traders said oil was supported by Mohammed Barkindo, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), saying he is confident about the prospects of a planned production cut following an OPEC meeting on Nov. 30.

"I am optimistic we will have a decision," he said.

In its first output cut agreement since 2008, OPEC said it plans to reduce production to 32.50 million to 33.0 million barrels per day (bpd), compared with record output of 33.6 million bpd in September.

The group also hopes non-OPEC producers, especially Russia, will cooperate in a cut.

In China, a raft of economic and trade data was released on Wednesday.

While economic growth was in line with expectations, at an annual growth rate of 6.7 percent in the third quarter, its oil figures were supportive of higher oil prices, traders said.

China processed 43.8 million tonnes (10.7 million bpd) of crude oil in September, up 2.4 percent from a year ago, government data showed on Wednesday.

Over the same month, China's oil production fell 9.8 percent to 15.98 million tonnes (3.89 million bpd), in its steepest decline in 19 months.

Offsetting the Nispero 1 gas discovery that Canacol announced in late August 2016, the Trombon 1 exploration well was spud on the Esperanza E&P contract on September 13, 2016. The well reached total depth of 10,360 feet measured depth ('ft. md') in sixteen days. The well encountered 26 ft. md (21 feet true vertical depth) of net gas pay with average porosity of 22% within the primary Cienaga de Oro ('CDO') reservoir target. The CDO reservoir interval was perforated between 8,328 to 8,354 ft. md and flowed at a final stabilized rate of 26 million cubic feet per day ('MMscfpd') of dry gas with no water. Trombon 1 tested with a flowing tubing head pressure of 2,254 pounds per square inch over a 36-hour test period. The Corporation finished completion of the Trombon 1 well for permanent production via the Nispero to Jobo flow line. Trombon 1 will tie into the Corporation's operated Jobo production facility.

2016 Drilling Program

The Corporation's resource capture strategy anticipates four more wells before year end. The Corporation has contracted the Tuscany Rig-14 to drill the Nelson 6 gas exploration well and Nelson 8 gas development well. Tuscany Rig-15 is mobilizing from the Trombon discovery to the Clarinete field to drill the Clarinete 3 gas development well. The Nelson 6 exploration well is expected to spud on October 18, 2016 and will target interpreted gas pay within the shallow Porquero sandstone reservoir in the Nelson field. Upon completion, the Corporation will drill the Nelson 8 development well targeting productive reservoirs within the CDO reservoir that are not being drained by the existing producing wells in the Nelson field. A third rig will be contracted to drill the Mono Capuchino-1 oil exploration well on the VMM 2 E&P contract located in the Middle Magdalena Basin.

Corporate Production

Realized contractual oil and gas sales for the quarter ended September 30, 2016 averaged approximately 18,908 boepd, which consisted of 86.1 MMscfpd (15,107 boepd) of gas, and 3,801 barrels of oil per day.

Gulfport Energy Corporation (Nasdaq: GPOR) provided an operational update for the quarter ended September 30, 2016 and scheduled its third quarter financial and operational results conference call. Key information for the third quarter of 2016 includes the following:

Net production averaged 734.1 MMcfe per day, a 13% increase over the third quarter of 2015 and a 10% increase versus the second quarter of 2016, exceeding Gulfport’s previously provided third quarter of 2016 guidance of 685 MMcfe per day to 705 MMcfe per day.Realized natural gas price, before the impact of derivatives and including transportation costs, averaged $2.10 per Mcf, a $0.71 per Mcf differential to the average trade month NYMEX settled price.Realized oil price, before the impact of derivatives and including transportation costs, averaged $41.81 per barrel, a $3.13 per barrel differential to the average WTI oil price.Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $13.98 per barrel, or $0.33 per gallon.

Third Quarter Production and Realized Prices

Gulfport’s net daily production for the third quarter of 2016 averaged approximately 734.1 MMcfe per day. For the third quarter of 2016, Gulfport’s net daily production mix was comprised of approximately 86% natural gas, 9% natural gas liquids and 5% oil.

Gulfport’s realized prices for the third quarter of 2016 were $2.67 per Mcf of natural gas, $45.09 per barrel of oil and $0.34 per gallon of NGL, resulting in a total equivalent price of $2.87 per Mcfe. Gulfport's realized prices for the third quarter of 2016 include an aggregate non-cash derivative gain of $22.4 million. Before the impact of derivatives, realized prices for the third quarter of 2016, including transportation costs, were $2.10 per Mcf of natural gas, $41.81 per barrel of oil and $0.33 per gallon of NGL, for a total equivalent price of $2.35 per Mcfe.

U.S. shale output drop seen for 12th straight month in November: EIA

U.S. shale oil production was expected to fall for a 12th consecutive month in November, according to a U.S. government forecast released on Monday, on the back of a two-year global rout in oil markets.

November oil production was expected to fall by 30,000 barrels per day to 4.43 million bpd, according to the U.S. Energy Information Administration's drilling productivity report, the lowest output since March 2014.

The biggest decline was in the Eagle Ford in Texas, which was set to drop by 35,000 bpd to 947,000 bpd. In North Dakota, oil production in the Bakken was set to drop by 21,000 bpd to 946,000 bpd.

While oil futures are trading at less than half their value of over $107 a barrel in mid-2014, they have recovered from a 13-year low near $26 in February, recently fetching $50 a barrel. That has allowed drillers to start increasing production in the Permian, the largest U.S. shale basin.

Permian output from West Texas and eastern New Mexico was set to rise by 30,000 bpd to a record high over 2 million bpd, its third monthly increase in a row, according to EIA data going back to 2007.

Total natural gas production, meanwhile, was forecast to decline for a seventh consecutive month in November to 46.0 billion cubic feet per day, the lowest level since July 2015, the EIA said.

That would be down almost 0.2 bcfd from October, making it the smallest monthly decline since July, it noted.

The biggest regional decline was expected to be in the Eagle Ford, down almost 0.2 bcfd from October to 5.6 bcfd in November, the lowest level of output in the basin since November 2013, the EIA said.

Output in the Marcellus formation, the biggest U.S. shale gas field, meanwhile, was expected to rise by almost 0.1 bcfd from October to 18.2 bcfd in November. That would be its first increase since July.

EIA also said producers drilled 506 wells and completed 533 in the biggest shale basins in September, leaving total drilled but uncompleted (DUC) wells at 5,069, the least since January 2015.

The only region to gain DUCs in September was the Permian, which rose for a third month in a row, gaining 51, to a total of 1,378, its highest since at least December 2013, EIA said.

SEA\LNG: LNG ready to meet shipping industry demand

SEA\LNG, the cross-industry coalition recently formed to address market barriers and accelerate the widespread adoption of LNG as a marine fuel, has issued a position statement ahead of the 70th Session of the IMO’s Marine Environment Protection Committee (MEPC).

The position statement outlines the benefits of LNG as a marine fuel and offers SEA\LNG’s support for the implementation of MARPOL Annex VI for the prevention of air pollution by ships.

SEA\LNG Chairman, Peter Keller, said: “Independent of the timing of the IMO’s implementation of the 0.5% global sulfur cap, today LNG is already a clean, safe, practical and economically viable fuel for the shipping industry. The industry is making big steps in creating the infrastructure to enable quick, safe and cost-effective LNG bunkering in key global ports; diminishing the price premium for LNG-fuelled vessels; as well as working with regulators to establish consistent international and national regulations, which we believe will enhance investment in this sector.”

Position statement

In addition to issuing its support for the implementation of the MARPOL Annex VI for the prevention of air pollution by ships, SEA\LNG states its belief that the implementation date decision for the marine fuel sulfur cap needs to rest with the Member States comprising the MEPC.

SEA\LNG believes that LNG will be the fuel of choice for vessels operating in global trade lanes, as well as in emission control area (ECA) zones, where LNG is already gaining a foothold.

Saudi Arabia Says Oil at $50-$60 Ensures Adequate Global Supply

Officials from Saudi Arabia and Kuwait, key protagonists in shaping OPEC policy, said oil at $50 to $60 a barrel would ensure adequate global supply, setting out a potential price band for the producer club before its meeting in Vienna next month.

“A $50, $60 oil price -- absent a supply accident -- is sufficient to develop the low-cost resources to provide increases that will be necessary over the next three to four years,” Andrew Gould, board director at state-owned giant Saudi Arabian Oil Co., said Tuesday in London.

His comments, at the annual Oil & Money conference in London, suggest Riyadh sees relatively little upside to prices in the short term. While benchmark Brent crude is up about 13 percent since the Organization of Petroleum Exporting Countries reached adeal Sept. 28 to manage supply, it’s still trading at half its level of mid-2014, at around $52 a barrel.

Projections for $50 to $60 oil over the next 15 months are “logical” and “acceptable,” Kuwait’s acting Oil Minister Anas Al-Saleh said in a report from the state-run Kuwait News Agency. “Unless there are new developments in the major oil-producing countries, this scenario will be most likely,” he said.

Saudi Arabia and Kuwait were among oil producers to hold output at or near all-time highs in September as OPEC continued to defend market share against rival suppliers including the U.S. While many high-cost shale wells were shut in after oil’s collapse, some North American drillers are starting to bring back rigs.

A sustained rally will depend on OPEC’s ability to agree on individual quotas when it meets on Nov. 30. Should the group succeed, a further price increase is likely to spur shale output, according to Fatih Birol, executive director of the International Energy Agency, who said he agrees that $50 to $60 is enough to meet short-term supply needs until 2020.

“This upward pressure on the prices would stimulate some high-cost producers to increase their production such as the U.S. shale oil,” Birol said Tuesday before the conference. “The price level around $60 would give a strong impetus to the bulk of the current U.S. shale industry.”

Others are looking for a higher price to proceed with longer-term projects. Hess Corp. Chief Executive Officer John Hess said Tuesday that low prices have been “devastating” and producers need $60 to $80 a barrel for “long-cycle” developments. A price of $50 would hold shale production flat, he said at the conference.

SM Energy to buy Permian Basin acreage for $1.6 billion

SM Energy Co said on Tuesday it would buy 35,700 net acres in West Texas's Howard and Martin counties for about $1.6 billion and sell its Williston Basin assets in North Dakota for $785 million to Oasis Petroleum Inc.

SM Energy has been trying to boost its presence in the Permian basin, while divesting assets elsewhere. The company had bought 24,783 net acres in Howard County for about $980 million in August.

The latest deal, which is expected to close in December, will expand SM Energy's footprint in the Permian Basin to about 82,450 net acres.

The company said it would pay $1.1 billion in cash and about 13.4 million in shares for the Permian property to QStar LLC, a portfolio company of EnCap Investments LP and a related entity.

SM Energy said it would use the proceeds from the Williston Basin asset sale to fund the majority of the acquisition. The rest would come from its revolving credit line.

The company also raised its capital expenditure to about $710 million, before acquisitions, as it plans to add a fourth rig in Permian's Midland basin during the fourth quarter. For 2017, SM energy's expects to run a total of six rigs in the basin.

Oasis said it was offering 40 million shares to fund the Bakken deal. The company's stock was down about 4.1 percent at $10.77 in premarket trading.

SM Energy shares rose 3.3 percent to $40. The company's stock has risen more than 32 percent since its Permian acquisition in August.

Petrie Partners advised SM Energy on both deals, while Jefferies LLC was the financial adviser to QStar and EnCap Investments LP.

Opec's Libya producing 580,000 b/d

EIA: World Oil Production In Balance, U.S. Natural Gas Production Way Down

World oil production is in balance and U.S. marketed natural gas output fell for the first time since 2005.

The EIA (U.S. Energy Information Administration) published its Short Term Energy Outlook (STEO) today. Here are the highlights.

World oil (liquids) output for September was 96.47 mmbpd (million barrels per day) and consumption was 96.39 mmbpd. That resulted in a slight surplus of 80,000 bpd, about as close to balance as it gets (Figure 1). That's bad news considering that the Brent price of $52 per barrel acts like there are a few million bpd of surplus. So much for the global economy.

EIA forecasts an average production WTI price of $50/barrel in 2017 with Brent $1/barrel higher.

The long decline in U.S. crude oil production appears to be over. September output increased 60,000 bopd.

Natural gas marketed production fell from 3.2 Bcf/d (billion cubic feet of gas per day) in 2016 but EIA expects it will magically gain 1 Bcf/d before the year is over (I doubt that).

Natural gas production continues its decline and total supply is projected to go into deficit in December 2016.

This is the first annual decline in gas production since 2005. But never fear-EIA projects a 3.7 Bcf/d increase in 2017.

I'm not sure where that will come from given that their gas forecast is an average price of $3.07 for 2017 and the best shale gas areas need $4 while the other plays need more like $6/mmBtu.

I guess that hedges and awesome increases in productivity explain the expected production rally.

OPEC will use secondary sources for Algiers deal

Supermajors to talk turkey in PNG

Discussions between ExxonMobil and Total and the Papua New Guinea government over a "co-operative development agenda" for the next LNG development phase are planned to begin before the year is over.

Joint venture partner to both supermajors Oil Search said today that once ExxonMobil’s entry into the PRL 15 joint venture has been confirmed via the completion of its takeover of InterOil, then "we anticipate that talks will commence with Total about possible co-operation and integration of the next phase of LNG development".

The PRL 15 permit contains the large undeveloped Elk-Antelope gas resource, currently owned by Total, Oil Search and InterOil, and associated with the greenfield Papua LNG project.

ExxonMobil's nearly-completed acquisition of InterOil implies that Elk-Antelope could support at least two new trains at the ExxonMobil-led PNG LNG facility, a notion that all parties have expressed an interest in due to the economic benefits.

"Various commercial models can be applied to deliver project integration. Studying the various options, their relative values and how the significantly increased overall value is shared equitably between the P’nyang, Elk-Antelope and PNG LNG owners is a core component of Oil Search’s Strategy Refresh. Preliminary indications from this work suggest that unitisation in some form is an optimal development solution," added Botten.

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Norway's prelim September oil output below forecast

Norway's preliminary oil output dropped 11 percent in September compared with the same month last year and underperformed the Norwegian Petroleum Directorate's forecast for the month by 4 percent, the agency said on Tuesday.

"Production is (also) less than last month and the main reason for this is that several fields were closed for maintenance," the NPD added.

The Goliat field, operated by Italy's ENI, was shut between Aug. 26 and Sept. 27.

NOTES: Oil, NGL (natural gas liquids) and condensate given in millions of barrels of oil equivalent per day. Gas is in billions of standard cubic metres. Statoil STL.OL is the largestoil and gas producer off Norway.

As OPEC Waits on Russia, Naimi Memoir Offers Cautionary History

Ali Al-Naimi, the former Saudi oil minister and architect of the 2014 pump-at-will OPEC policy that’s roiled markets since, drew the conclusion during his final years in office that there was "zero" chance of countries outside the group joining in production cuts.

The comments, made in his forthcoming autobiography ‘Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil,’ provide a cautionary history as OPEC waits on a pledge this month by Russian President Vladimir Putin to freeze or cut production.

Al-Naimi writes in the book that one of his aides asked him in November 2014 what was the chance of leading non-OPEC countries Russia, Mexico, Kazakhstan and Norway cutting oil production.

"I held up my right hand and made the sign for zero," he writes.

Although the former Saudi minister doesn’t write about the current negotiations, he strongly defends the no-limits approach he convinced OPEC to adopt two years ago. He writes the best way to re-balance the market is still to let supply, demand and prices work.

"The oil market is much bigger than just OPEC. We tried hard to bring everyone together, OPEC and non-OPEC, to seek consensus. But there was no appetite for sharing the burden," he writes in the 317-page book, published next month by Portfolio Penguin. "So we left it to the market as the most efficient way to re-balance supply and demand. It was -- it is -- a simple case of letting the market work".

Khalid Al-Falih, who replaced Al-Naimi as energy minister in May, is taking a different path. Saudi Arabia has agreed to cut production, despite its regional rival Iran’s reluctance to join the effort, and is trying to convince Russia and other non-OPEC countries to cut too.

Al-Falih is betting that a small production cut will pay for itself, even if others don’t join the effort, by raising prices enough to increase revenues. So far, it seems to be working -- Brent, the global crude benchmark has risen a to one-year high above $50 a barrel since OPEC agreed an outline deal in Algiers last month.

Al-Naimi, writing about OPEC’s decision in 2014, sees it a different way.

"If we, Saudi Arabia, or OPEC as a whole, cut production without the participation of major non-OPEC members, we would be sacrificing revenues as well as market share," he writes.

Financial Crisis

The former Saudi minister recalls how Igor Sechin, the powerful head of state-controlled Rosneft PJSC, "didn’t follow through" on his promise to cut output in 2008-09 during the global financial crisis.

He also offers the first on-the-record account of a meeting between himself, Sechin and Venezuelan and Mexican officials in Vienna in November 2014, when both Russia and Mexico declined to cut production.

Brazil to ease local content rules in oil industry

President Michel Temer's government will ease requirements that oil industry equipment be produced in Brazil as part of its effort to draw investment and lower costs that have hindered development of vast reserves, a senior official said on Monday.

Rules for future contracts will allow the importation of oil industry equipment that is not available in the country, Temer's chief spokesman Marcio de Freitas told Reuters.

"This will make it cheaper to produce oil and reduce the cost for Petrobras," he said of Brazil's state-led oil company.

De Freitas confirmed an earlier report by financial newspaper Valor Economico that Brazil will stop favoring companies that offer to purchase a larger amount of goods and services locally when selecting winners in oil and gas rights auctions.

Temer's new centre-right government also intends to loosen minimum local content rules by not specifying whether individual components, such as bolts, have to be produced in the country.

Temer's administration has been taking action to boost private investment in the country's oil industry, such as removing a requirement that Petrobras be the sole operator of vast offshore reserves in the costly subsalt layer.

The largest deep-water oil fields ever found were discovered two decades ago but the fall in oil prices, restrictions such as the local content rules and the indebtedness of scandal-plagued Petrobras have slowed their development to a crawl.

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Double Eagle Energy, a Texas unicorn, preps for a rare oil IPO

Double Eagle Energy, a Texas unicorn, preps for a rare oil IPO

Double Eagle Energy Permian LLC is a unicorn roaming the barren landscape of West Texas.

Founded by a retired NFL player and his high school buddy - with land deals signed on the hood of a pickup - the Fort Worth oil and gas company is now worth nearly $3 billion, according to a half dozen bankers who have examined its value.

That's triple the $1 billion threshold for a so-called unicorn, the moniker most often used in Silicon Valley for high-value private companies. An IPO would be a crowning achievement for John Sellers and Cody Campbell, who co-founded predecessor companies starting in early 2009.

The valuation is based on prices paid for mineral rights in the Permian Basin, where the duo has leased more than 65,000 net acres of oil-rich land in the past two years. Demand has soared here because of new drilling techniques that can extract crude at a profit despite low oil prices.

The success of any Double Eagle IPO would depend on whether the oil price recovery holds, but that uncertainty doesn't bother the Texans - so far, they have made a fortune off the price crash.

"Had it not been for the turndown," Sellers said, "we would never have seen as many opportunities to put together so much acreage."

Until now, most energy companies have been bought out before going public, but the successful IPO this month of Extraction Oil & Gas (XOG.O) - the first stock market debut of a U.S. oil and gas explorer in more than two years - could pave the way for more.

The Double Eagle business model is not new. Dale Operating, a private company in Dallas, has leased and sold 17 portfolios of assets since 1982. It is a high-risk endeavor because leases can run out before drilling succeeds.

"It's possible to be directionally right, but lose if it does not happen in time," said Larry Dale, the president of Dale Operating.

Now, Double Eagle is ramping up the risk by becoming a drilling company, competing against established Permian Basin players such as RSP Permian Inc (RSPP.N) and Callon Petroleum Co (CPE.N).

BUGS CRAWLING THE WALLS

Sellers and Campbell got into the oil business after the 2008 U.S. housing crash ended their separate careers as real estate developers. Sellers had gone into real estate after college, and Campbell had done so in 2006 after a pectoral muscle tear cut short his 17-month career as an offensive lineman with the Indianapolis Colts of the National Football League.

Nearly broke, Sellers and Campbell relied on bank loans and help from friends and family to get started.

Unlike larger competitors, who outsource the search for lease rights to local agents, the two men searched land registers themselves for mineral deeds, then followed up personally with the landowners, usually small farmers in Texas and Louisiana.

They often sealed deals for lease options on 200 or 500 acres at a time with handshakes outside the local grain elevator. The goal was to sell groups of leases to drillers such as Chesapeake Energy Corp (CHK.N) or Devon Energy Corp (DVN.N).

In the early days, they worked out of an old Texaco field office in rural Texas. Bugs crawled the walls. The two men, still in their twenties, shot cans out back for fun.

“Every deal was critical," Sellers said in an interview at Double Eagle’s more upmarket current headquarters in Fort Worth. "If they didn’t sell, we were done.”

CASHING IN

During a particularly cash-strapped moment, they bought one landowner a round-trip, first-class ticket to London - spending $9,800 on a credit card with a $10,000 limit - as a form of payment to extend their lease option on his land. The lease on that land was eventually sold, to Endeavor Energy Resources LP, one day in January 2009 - an hour before the option expired - in a hotel lobby in Tyler, Texas.

The landowner wept when he got a check for $5.5 million for his mineral rights. Sellers and Campbell made enough to pay off their debts and went on to secure more than ten thousand leases covering more than a million acres, selling them off in bundles.

By 2012, with the price of oil at about $100 per barrel, Double Eagle's success caught the ear of Wall Street. Greg Beard, Head of Natural Resources at private equity firm Apollo Global Management LLC, recalled thinking after he first met them in Ft. Worth: "We have to work with these guys."

Apollo invested, and less than two years later, in November 2014, Sellers and Campbell sold one of their many business entities, Double Eagle Energy Oklahoma LLC, for $251 million to Aubrey McClendon's American Energy Partners L.P. Apollo reaped a four-fold return from its early investment on acreage in the Oklahoma formation known as the SCOOP, which is now crowded with drillers.

The sale couldn't have come at a better time. The price of oil had already peaked and was heading toward a 12-year low of about $28 per barrel.

Oil edges up as analysts say market could be closer to balance than expectedArgentine wheat quality expected to jump as demand soars

The move comes after some spectacular failures in traditional leveraged buyouts of energy companies. KKR & Co LP’s (KKR.N) $7.2 billion acquisition of Samson Resources Corp, for instance, ended in bankruptcy last year when shale drilling became more expensive than the debt-laden company could handle. Apollo’s EP Energy Corp (EPE.N), also purchased in a leveraged buyout, has lost four-fifths of its stock value in the oil market rout since the exploration and production company went public in January 2014 at a valuation of more than $5 billion.

BASIN ECONOMICS

Sellers and Campbell sensed opportunity as the price headed south. They focused on the Midland Basin, a rocky area of the Permian basin where technological advances had made it profitable to drill even with prices at $35 a barrel.

They deployed the same model – searching land registers and dealing with landowners directly – but this time with a staff of more than 50. Deals still get done on the hoods of trucks.

Apollo has again teamed up with them and, together with Campbell and Sellers, have invested more than $500 million.

Starting next month, Double Eagle will drill on their leased land instead of flipping the mineral rights. It has hired a well-completion expert to prepare for drilling, and in August brought on a chief financial officer with public company experience to prep for an IPO. In October, the company merged with Veritas Energy - increasing its leased acreage by about a third - and created Double Eagle Energy Permian LLC.

The timing again looks fortuitous, with oil prices up more than 10 percent this month on prospects that the Organization of the Petroleum Exporting Countries (OPEC) and other major producers will agree a sizeable output cut or freeze.

Sellers and Campbell are counting on their West Texas location to help them hedge against the additional risks of drilling.

“Even if the rest of the industry crumbles, that basin is going to stand on its own," Campbell said. "It has the best economics of any North American basin.”

Bernstein Research Says Longer Laterals Not Necessarily Nirvana

Over the past six months or so MDN has repeatedly read about drillers in the Marcellus/Utica drilling longer laterals (the horizontal part of the well) and using way more sand to keep the cracks propped open longer.

And between longer laterals and more sand, drillers in the northeast are getting higher output from their wells.

So it was with some interest (and skepticism) that we read about new research that says longer laterals don’t lead to greater production totals. The research is from a respected source: Bernstein Research.

However, the data used was only from the Barnett Shale–so it’s not clear to us how relevant the findings are for northeast drillers.

Mammoth IPO Not So Mammoth After All – Priced at Low End

Two weeks ago MDN brought you news that oilfield services company Mammoth Energy Services, headquartered in Oklahoma City, OK, with operations in both the Utica Shale and Permian Basin, was floating a new initial public offering.

The IPO, relatively small by most measures (hoping to raise ~$150 million) was closely watched because it’s one of the few new IPOs in the oil and gas sector this year.

The IPO is done and the stock has begun to trade. How did they do? Mammoth targeted $15-$18 per share. They settled for the low-end $15/share. And after the trading began, the stock sank…

Iran oil minister: hopes soon to reach Qatar's gas production

Iran hopes by early next year to boost its natural gas production to Qatar's level, Iranian oil minister Bijan Zanganeh told an energy conference on Monday.

He said Iran's priority was developing the giant South Pars gas field which it shares with Qatar, as well as shared oil fields.

Iran plans to increase its crude oil production to 4 million barrels per day in 2019 and 4.28 million bpd in 2020, while boosting condensate output to 1 million bpd as early as 2018, Zanganeh told the conference. Crude output is currently 3.8 million bpd and condensate output 688,000 bpd, he said.

The minister also said new oil and gas contracts for international and domestic companies would focus on enhancing rates of oil recovery.

Earlier in the day, the managing director of the National Iranian Oil Company, Ali Kardor, said Iran expected to tender the new contracts by the end of November.

Nigeria asks for $15 Bln upfront from India

Emmanuel Ibe Kachikwu, on a visit to New Delhi, said Nigeria was likely to sign a cash-raising oil deal with India for $15 billion by the end of this year. India's oil ministry said that Nigeria, whose economy has been hit hard by low oil prices and militancy, had requested an upfront payment.

"Nigeria has a bit of a cash flow problem right now. Our reserves are not as strong as we want them," Kachikwu told reporters on Monday. "The impact of that is the value of the naira (currency) is coming down. So what we are trying is to leverage on the assets we have to receive immediate cash."

He said the Organization of the Petroleum Exporting Countries, which has agreed to cut world output to rescue prices, has however allowed a production window of 1.8 million bpd to 2.2 million bpd for recession-hit Nigeria.

Apart from the impact of low oil prices, whose sales account for 70 percent of the Nigerian government's revenue, the country's energy facilities have been crippled by attacks by militants calling for a greater share of the country's oil wealth.

Relentless attacks have taken out pipelines in Nigeria, normally Africa's largest oil exporter, and Qua Iboe, Nigeria's largest export stream, and Forcados remain under force majeure.

Iran hopes to raise its crudeoil production to around 4 mil b/d in the next 2 weeks

Iran hopes to raise its crudeoil production to around 4 mil b/d in the next 2 weeks: National Iranian #Oil Company.

@PlattsOil

Iran, OPEC’s third-biggest member, plans to boost its oil output to 4 million barrels a day this year, potentially complicating the producer group’s plan to cut supply in an effort to prop up prices.

Oil Minister Bijan Namdar Zanganeh said he hopes the Organization of Petroleum Exporting Countries will agree next month at a meeting in Vienna to limit output. Iran is seeking about $200 billion of investment in its oil, natural gas and petrochemicals industries to raise production and sales, according to figures Zanganeh presented Monday at a conference in Tehran. The country is targeting an average daily output of 4.28 million barrels of crude and 1 million barrels of condensate within four years, he said.

OPEC members will meet next month to seek agreement on how to put into effect aplanned cut in the group’s output. OPEC decided last month in Algeria to reduce its collective production to between 32.5 million and 33 million barrels a day to rein in a global glut and support prices, though it may exempt Iran from any cuts. Iran lost its position as OPEC’s second-biggest producer after international sanctions were tightened in 2012 and has defended its steps to ramp up output to return to prior levels.

“The difficulty in implementing the deal will be with the potential for production increases within OPEC,” Giovanni Staunovo, a commodities analyst at UBS Group AG, said by phone from Zurich. “It may also be a bargaining chip, as what everyone wants is to get into the OPEC talks with a higher level of production from which to cut or freeze.”

Production Plans

Iran aims to raise production from 3.89 million barrels a day currently, Ali Kardor, managing director of National Iranian Oil Co., said at the conference in Tehran. Amir Hossein Zamaninia, deputy oil minister for international affairs, told reporters the country pumped 4.085 million barrels a day before sanctions were imposed on its economy. “We need to reach pre-sanctions production levels,” he said.

Iran pumped 3.63 million barrels of oil a day in September, data compiled by Bloomberg show. The country is producing at full capacity and aims to raise exports to 2.5 million barrels a day by March, Kardor said. Iran currently exports more than 2.2 million barrels a day, Zamaninia said.

“We should decide in November how much every country should produce,” Zanganeh said. He didn’t comment on Iran’s participation, if any, in the OPEC agreement.

Data Questioned

Kardor disputed the accuracy of OPEC’s data on the country’s production. Figures based on estimates from secondary sources such as analysts and journalists are “not acceptable” for use in determining the country’s output quota, he said. The accuracy of OPEC’s secondary-source data is important because the group may use the information to set individual member quotas.

Iran is ramping up efforts to woo foreign investment in an energy industry stunted by years of sanctions. NIOC on Monday began soliciting documents from international companies to pre-qualify as bidders to develop the country’s oil and natural gas fields, according to an announcement posted on its website. Interested companies will have until Nov. 19 to submit their qualifications, and the government will publish a list of eligible bidders on Dec. 7, according to Shana, the Oil Ministry’s news service.

The country may tender the first field, the South Azadegan deposit, to international companies as early as November, NIOC Managing Director Kardor said. Total SA of France had been developing a technical program for development of the field after signing a data-sharing agreement with Iran earlier this year, Kardor said. NIOC signed 10 agreements giving foreign companies access to data on its fields with the aim of bringing in partners to boost output, he said.

Total is also in the running to develop Iran’s South Pars 11 gas development, Kardor said. A first oil development agreement with an international company could be signed by March for South Azadegan, he said.

Gas leak delays start-up of Qatar's Barzan gas project - sources

Qatar has delayed the start-up of its Barzan Gas project because of a leak discovered in a gas pipeline, two sources with knowledge of the matter told Reuters.

The $10 billion project, a RasGas-operated joint venture between Qatar Petroleum and Exxon Mobil, is designed to meet rising domestic energy demand in the Gulf state as it prepares to host the soccer World Cup in 2022.

After repeated delays, the project's first phase was due to start in November, boosting Qatari gas production by up to 2 billion cubic feet per day when it reached capacity in the first half of 2017. But a leak was discovered in recent weeks, the sources said.

"There was a gas leakage in one of the project's upstream pipelines, the impact of which is still being assessed," said a Doha-based source familiar with the project who declined to be named as he was not authorised to speak publicly. "A start-up this year is unlikely."

Petrobras says September output in Brazil hits 2.75 mln bpd

Oct 17 State-run oil company Petrobras' production of oil and natural gas in Brazil reached 2.75 million barrels of oil equivalent per day in September, the company said in a securities filing on Monday.

Petroleo Brasileiro SA, as the company is formally known, said it produced a further 0.13 million barrels per day outside Brazil. September's total output represented an increase of 1.4 percent from the previous month, with production in Brazil hitting a montly record, the company said.

UK competition watchdog says ICE has to sell Trayport

Financial and commodity markets operator Intercontinental Exchange Inc will have to sell commodities software house Trayport to preserve competition in the energy trading industry, Britain's competition watchdog said on Monday. bit.ly/2elcJZN

ICE, one of the world's biggest exchange operators, closed its deal to buy Trayport in December last year for around $650 million in stock. It beat off arch-rival CME Group Inc to acquire the technology firm and reinforce its position in European energy trading markets.

But Britain's Competition and Markets Authority said on Monday that traders, brokers, exchanges and clearing houses that compete with ICE in the trading and clearing of European utilities, depend on the Trayport platform to carry out these transactions effectively.

The watchdog concluded that the deal needed to be unwound as ICE could use Trayport's platform to reduce competition between itself and its rivals, leading to increased fees for execution and clearing, and a worsening of terms offered to traders.

"ICE is disappointed by the decision, having presented a compelling clearance case, and will now consider its options including the possibility of an appeal," the company told Reuters in an emailed statement.

Even at $100 for coal, Asia's LNG industry struggles to compete

The liquefied natural gas (LNG) sector has watched with joy how thermal coal prices have soared this year, hoping that the unexpected spike would at last make LNG price competitive in Asia.

Although much cleaner than coal in terms of pollution and carbon emissions, natural gas has struggled to make inroads in Asia's power generation mix since it is typically more expensive to produce electricity from gas than coal.

Despite an over 90 percent coal price rally to almost $100 a tonne, and even with relatively low LNG prices of $6.50 per million British thermal units (mmBtu) LNG-AS, versus $20 per mmBtu in 2014, gas still can not compete with coal in Asia.

"Even though coal prices have reached $90 per tonne, it (LNG) is still not competitive," said Chong Zhi Xin, principal LNG analyst for Asia Pacific at energy consultancy Wood Mackenzie.

For Asian LNG to become competitive, Reuters calculations based on fuel and power generation costs show that coal - by far the fuel most widely used for electricity generation in Asia - needs to rise further from its current three-year highs, towards $110 a tonne.

Coal prices are currently near that level. Pushed by a domestic mining operation cap in China, which forced its power generators to increase imports, prices for coal from Australia's Newcastle port soared by 95 percent this year, to almost $95 per tonne, in what has been one of the commodity's steepest rallies ever.

"2016 has delivered its fair share of commodity market surprises. But none have been more unexpected than the sharp recovery in coal prices," Olly Spinks and David Stokes of Timera Energy wrote in a note on Monday.

But a continuation of the rally, or even a sustained period of coal at current prices, is seen as unlikely.

Goldman Sachs said in a note this month that "risks are now skewed to the downside" for coal prices.

The coal price forward curve is already in deep backwardation, where cargoes for future delivery are cheaper than those for immediate loading, showing an over $20 per tonne price fall between the fourth quarter of this year and the end of 2017, to little more than $70 a tonne.

Coal futures for 2017 delivery are also much lower than prompt cargoes at $66 per tonne.

"This is consistent with market expectations that some of the shorter term constraints of 2016 will ease into next year," Goldman said.

That would mean that LNG will continue to struggle to compete against coal on price alone.

PDVSA's default prospects hinge on swap deal, oil price: analysts

The prospects for a default in 2017 by Venezuela's PDVSA will depend on how much flexibility the troubled state-owned oil company negotiates with bond holders in a multi-billion dollar debt swap closing next week, two analysts said Friday.

Investors have until Monday to respond to sweetened terms for swapping $5.3 billion of 2017 notes for new bonds due in 2020.

"If the swap doesn't happen, they're in big trouble for next year," said Francisco Monaldi, Latin American energy policy fellow at the Baker Institute for Public Policy. "I think they're really worried about that."

Speaking at an Inter-American Dialogue forum in Washington, Monaldi said PDVSA had been counting on the swap deal and a recovery in oil prices to save the day -- but both factors are looking uncertain.

Raul Gallegos, senior analyst for Control Risks, said the deal's initial terms were not attractive enough and even the adjusted terms are not "doing much for investors."

"But, conceivably, if oil prices start inching up a little bit, that might make it enough for them to just make it by next year, although that will be tough, definitely," Gallegos said.

"In our view, certainly this year we don't see [a default], and next year, we believe they could still scrape through," he added.

Venezuela's third-quarter 2016 crude production dropped 12% year on year to 2.11 million b/d, according to Energy Information Administration data released Thursday. That compares with the 2.33 million b/d that Venezuela reported to OPEC for August.

"I would take those numbers with a grain of salt -- there's a lot of opaqueness," Gallegos said, adding that he does not expect output to drop much below 2 million b/d next year.

Venezuela's oil exports are falling slower than its production because of a sharp drop in domestic demand and the country's dependence on imported diluents and oil products for the domestic market, Monaldi said.

He said January-September exports dropped 7% year on year, compared with a 12% drop in production for the same period.

Iran Kicks Off Oil-Development Tender to Woo Foreign Investors

Iran is ramping up efforts to woo foreign investment in an energy industry stunted by years of sanctions, with a request for companies to submit documents to pre-qualify as bidders to develop the country’s oil and natural gas fields.

State-run National Iranian Oil Co. will solicit documents from international companies starting Monday, according to an announcement posted on the website of Shana, the oil ministry’s news service. Interested companies will have until Nov. 19 to submit their qualifications, and the government will publish a list of eligible bidders on Dec. 7, according to Shana.

The announcement marks an acceleration in Iran’s effort to rejuvenate its energy industry since economic sanctions were eased in January. OPEC’s third-largest producer is seeking to attract investors with a revised oil investment contract to boost output at fields it shut when exports were restricted. The country wants to attract more than $100 billion in investment to increase its oil production by 1 million barrels a day by the start of the next decade.

Iran pumped 3.63 million barrels of oil a day in September, data compiled by Bloomberg show. The Organization of Petroleum Exporting Countries will meet next month to seek agreement on how to put into effect a planned cut in the group’s output. OPEC agreed last month in Algiers to reduce its collective production to between 32.5 million and 33 million barrels a day, though it may exempt Iran from any cuts.

NIOC wants to sign new development contracts with foreign and domestic companies during the current Iranian year, which runs through March, Mehr News Agency reported on Sept. 17, citing Ali Kardor, a deputy oil minister and NIOC managing director.

Oil Speculators Most Bullish Since ’14 After Wild Two Months

Oil investors must be getting dizzy.

In the two months since OPEC began talking about capping production, speculators’ sentiment has swung wildly, with government and exchange data showing the four biggest weekly position changes ever for the two global benchmark crudes. The latest shift is to optimism, with money managers the most bullish on West Texas Intermediate oil in two years.

"Since the summer we’ve had big moves in net length," said Mike Wittner, head of oil-market research at Societe Generale SA in New York. "It usually has trended up or down over a couple of months. Now this is happening in a matter of weeks. We’re seeing huge shifts."

Money managers reduced bets on lower WTI prices by more than half in the past three weeks as OPEC agreed to its first deal to cut output in eight years. That drove net length to the highest since July 2014 in the week ended Oct. 11, Commodity Futures Trading Commission data show.

The Organization of Petroleum Exporting Countries agreed on Sept. 28 in Algiers to trim output to a range of 32.5 million to 33 million barrels a day, which is due to be finalized at the Vienna summit next month. OPEC took a step toward coordinated supply curbs with Russia last week and will meet for a “technical exchange” to set a road map for output levels later this month.

The swings in sentiment have tracked the rocky road to $50 a barrel oil. Speculators’ combined WTI and Brent crude net position rose or fell more than 100,000 contracts four times in the past two months, the only moves of that size in CFTC and ICE Futures Europe data going back to 2011.

Prices began to rise after OPEC’s president said Aug. 8 that the group would hold informal talks in Algiers and Saudi Arabia signaled Aug. 11 it was prepared to discuss taking action to stabilize markets. Futures gave up most of those gains amid doubts that Saudi Arabia and Iran to reach an deal, before the agreement in Algiers sparked the latest rally.

"The change in tone from the Saudis is important," said Kurt Billick, the founder and chief investment officer of Bocage Capital LLC in San Francisco, which manages about $432 million in commodities equities and futures. "Getting to a yes in Vienna is challenging. That they are willing to talk about a deal is a big change."

Money managers’ short position in West Texas Intermediate crude, or bets on falling prices, shrank by 28 percent to 71,407 futures and options. Longs rose 1.8 percent to the highest since June 2014. The resulting net-long position increased 13 percent.

WTI increased 4.3 percent to $50.79 a barrel in the report week. Prices on Monday were down 0.3 percent at $50.19 a barrel as of 12:17 p.m. in Singapore.

The scale of the internal differences OPEC must resolve before securing a deal to cut supply was revealed Oct. 12 as the group’s latest output estimates showed a half-million-barrel difference of opinion over how much two key members are pumping.

"The bottom line is that they’ve made an agreement," Wittner said. "If you are going short you are betting against the Saudis, which isn’t a good thing historically."

Rival faction challenges Libya's U.N.-back government in Tripoli

A Libyan faction opposed to the U.N.-backed government seized a building used by parliament in Tripoli, proclaiming its own authority and demanding a new government in a challenge to Western plans to end the instability in the country.

Libya's internationally backed government, which has struggled to impose its authority on rival factions, condemned the takeover of the Rixos Hotel as a bid to scuttle its attempts to form a stable government in the North African OPEC member.

Later on Saturday, the U.N.-backed government posted images on social media of its presidential council and ministers holding a meeting in the main offices of parliament in a different part of Tripoli.

The United Nations and European Union warned against attempts to create parallel institutions and reiterated their backing for the U.N.-negotiated deal that formed a Government of National Unity (GNA) in Tripoli.

Since the fall of Muammar Gaddafi in 2011, Libya has been caught up in factional fighting between various groups of former rebels who battled Gaddafi and then steadily turned against each other in a struggle for control.

The presidential council of the GNA arrived in Tripoli in March in the latest attempt to bring together factions who operated competing governments in the capital and in the east of the country since 2014.

Tripoli was calm on Saturday hours after leaders of a former Tripoli government said they had taken over the Rixos in the capital, where part of the U.N.-backed government is supposed to operate. The hotel was already controlled by an armed group loyal to them.

"The presidential council was given chances one after another to form the government, but it fails... and has become an illegal executive authority," former premier Khalifa Ghwail said in a statement late on Friday.

Ghwail called for a new administration to be formed by his former Tripoli government and its rival in the east, where hardliners also oppose the U.N.-backed administration. He said all institutions including banks, the judiciary and local authorities were under their jurisdiction.

There appeared to have been no fighting in the takeover of the Rixos, which was supposed to be the base for the State Council, a legislative body made up of Tripoli's former parliament as part of the U.N.-backed unity government deal.

Traffic was flowing as normal around the Rixos on Saturday, where around 10 military vehicles secured the perimeter.

"The seizure of the state council is an attempt to hinder the implementation of political agreement by a group which rejects this deal after it has proved its failure in managing the state," the presidential council said in a statement.

Tripoli is controlled by various armed brigades, some loyal to the GNA and others who backed the former National Salvation government when its forces took over the capital in 2014 in fighting that destroyed the international airport.

Brigades of former rebels have often stormed government offices, ministries and the parliament in the last five years to make political demands or call for higher salaries.

Challenging the GNA's authority in the capital poses a risk to Western plans for Libya's unity government to stabilise the country and help fight Islamist militants and migrant smugglers.

Eastern factions led by former General Khalifa Haftar are also opposed to the U.N.-backed Tripoli government. But they fought a conflict with rivals for control of Tripoli in 2014. Haftar's forces have taken over four key oil ports and now are cooperating for the moment with the GNA in allowing oil exports.

Attackers set NNPC crude pipeline on fire in Niger Delta: Nigerian army

Attackers have set fire to a crude oil pipeline in Nigeria's restive Niger Delta, a military spokesman said on Saturday, the second strike in the country's oil hub within a day.

A militant group had earlier said it attacked the pipeline, which is run by the state oil firm NNPC and a local private firm, Shoreline, near Ughelli on Friday night.

"The Niger Delta Greenland Justice Mandate is not kidding with anybody," the militants said in a statement.

"This shall be the state of affairs until all of you adjust to taking our land and the lives of our people seriously," it said, referring to this and a similar attack in the same area on Thursday night.

There was no immediate information on the impact of the latest incidents on Nigeria's oil production. Attacks have reduced output by 700,000 barrels per day since the start of the year.

Militants say they want a greater share of Nigeria's oil wealth to go to the impoverished Delta region. Crude sales make up about 70 percent of national income and the vast majority of that oil comes from the southern swampland.

Nigeria, an OPEC member, was Africa's top oil producer until the recent spate of attacks pushed it behind Angola.

President Muhammadu Buhari has said the government is trying to negotiate a lasting solution with the militants, but there has been no visible progress.

The militants are splintered into small groups, made up mostly of unemployed men, who even their leaders struggle to control.

Cushing Pipeline Suspension Gets Extended

Cushing Pipeline Suspension Gets Extended

Plains All American Pipeline, the operator of the biggest pipeline carrying crude from the Permian to Cushing, Oklahoma, said it has extended the suspension of the pipeline due to problems with pressure. The announcement was made on Thursday, the day when the pipeline was to be restarted after a 10-day stoppage for a hydrotest.

The news immediately affected the spread before the front-month futures contract for West Texas Intermediate, and the second-month contract, Reuters noted, with traders largely expecting the planned outage to cause a shortage of 2 million barrels at Cushing for last week. As a result, the front-month WTI contract’s discount to the second-month futures narrowed by 10 cents to just US$0.33. Spot prices for WTI were also affected, with the discount to the futures contract diving to US$1 a barrel from US$0.15 in the same session, before the pipeline operator made its announcement.

The November contract for WTI closed at US$50.77 a barrel on Thursday, up 0.56 percent. The spot price for the benchmark at Cushing was US$50.72 on Tuesday, the latest available figure from the EIA.

The Permian pipeline is the only outgoing one in the most productive shale play in the U.S. It has a daily capacity of 450,000 barrels of crude, and if Plans All American Pipeline does not complete the work on it until next Thursday, storage facilities along and around it could fill up. This would push spot prices further down, according to traders.

Attached Files

Brazil’s Petrobras Announces New Retail Fuel Pricing Plan

Brazilian state-run oil company Petróleo Brasileiro SA, or Petrobras said Friday said it would adopt a new fuel pricing policy that will link domestic fuel prices more closely with the price of petroleum on international markets.

The change is a major departure for Petrobras, which has long been subject to government pressure to manipulate fuel prices in line with policy objectives.

The company said that it will cut diesel prices by 2.7% and gasoline prices by 3.2% in its refineries. The price reductions will start this weekend.

The impact on final prices for consumers depends on how much of the reductions are passed along by distributors and gasoline stations. But if the cuts are fully reflected in retail prices, Petrobras estimates that pump prices of diesel will fall by 1.8% and gasoline by 1.4%. Brazilian consumers have seen no reductions in retail prices over the past few years, despite plummeting oil prices.

“Who decides the price is the market,” said Jorge Celestino, director of refining and natural gas, at a Friday press conference in Rio de Janeiro. He said the company wants to attract strategic partnerships in refineries and other areas. “For this, we need to have a consistent price policy, which adheres to the market,” he said.

In the short-run, the price cuts will likely reduce Petrobras’ revenue.

But in the long-term the move is a major positive for the company, said João Pedro Brugger, an analyst at Leme Investimentos in Florianopolis.

“It’s very good for business as it ensures flexibility for executives to adjust prices according to market conditions,” Mr. Brugger said.

In morning trading in Sao Paulo, Petrobras preferred shares were up 2.15% at 16.10 reais while the company’s common shares were up 1.60% at 17.78 reais. The Ibovespa, the main local stock exchange index, was up 0.96%.

Petrobras said it would monitor international prices and will review its pricing policy monthly.

“We don’t think that a parametric and deterministic form is the best way for the company to operate. It is an extremely dynamic market where things happen quickly,” said the company’s president, Pedro Parente. “We need to act in the way that is best for the company. It is a clear, transparent policy.”

Petrobras’ retail fuel prices have long been a source of friction between company management and the government. Under former leftist President Dilma Rousseff, for example, Petrobras kept a lid on fuel prices in a bid to fight inflation, even as international petroleum prices rose. Brazil is a net importer of refined fuel, thus the move cost Petrobras’ refining unit billions as it imported pricey gasoline and sold it at a loss to consumers.

Petrobras, the most indebted oil major in the world, is in the midst of a major restructuring aimed at returning the troubled firm to health. The company is selling assets and seeking investment partners as it recovers from a major corruption scandal that has upended Brazilian politics.

Freeport-McMoRan Inc. announced today a purchase and sale agreement to sell its onshore California oil and gas properties to Sentinel Peak Resources California LLC for total consideration of $742 million, including contingent consideration.

Under the terms of the agreement, FCX will receive cash consideration of $592 million at closing and additional consideration of $50 million per annum in each of 2018, 2019 and 2020 if the price of Brent crude oil averages $70 per barrel or higher in that calendar year. The purchasers will also assume future abandonment obligations associated with the properties, which had a book value of approximately $0.1 billion at June 30, 2016.

The transaction has an effective date of July 1, 2016, and is expected to close in fourth-quarter 2016, subject to customary closing conditions.

Net cash proceeds will be used for debt repayment. FCX does not expect to record a material gain or loss on the transaction.

Following completion of this transaction and the previously announced Deepwater Gulf of Mexico (GOM) sale, FCX’s portfolio of oil and gas assets would include oil and natural gas production onshore in South Louisiana and on the Shelf of the GOM, oil production offshore California and natural gas production from the Madden area in Central Wyoming. In the second quarter of 2016, these properties produced an average of 8.6 thousand barrels of oil and natural gas liquids per day and 78 million cubic feet of natural gas per day.

FCX is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets. FCX is the world's largest publicly traded copper producer.

FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America. Additional information about FCX is available on FCX's website at "fcx.com."

Sentinel Peak Resources is a private energy company focused on acquisitions and development primarily in California. Sentinel Peak Resources is backed by Quantum Energy Partners, a leading provider of equity capital to the energy industry.

Shell Said to Consider Sale of $1 Billion Malaysia LNG Stake

Royal Dutch Shell Plc is considering a sale of its stake in a Malaysian liquefied natural gas export plant, which could fetch more than $1 billion, people familiar with the matter said.

Shell is gauging interest in its 15 percent stake in MLNG Tiga Sdn., which owns an LNG terminal in Sarawak on the island of Borneo, according to the people. The sale may draw interest from private-equity firms, the people said, asking not to be identified as the process is private. Malaysia’s state-owned Petroliam Nasional Bhd., which holds 60 percent of MLNG Tiga, has pre-emptive rights on the stake, one of the people said.

The disposal is part of the Anglo-Dutch energy giant’s plan to raise $30 billion from asset sales in the three years through 2018 to help cut borrowings after its acquisition of BG Group Plc prompted Fitch Ratings Ltd. to lower its credit rating. The company’s total debt ballooned to $90.3 billion at the end of June, from $52.9 billion a year earlier, data compiled by Bloomberg show.

“The pressure is on Shell to slim down its global footprint following the BG acquisition,” Saul Kavonic, a Perth-based analyst at energy consultancy Wood Mackenzie Ltd., said in an e-mailed response to questions. “Majors are also looking to remove mature, high ongoing-cost assets and rebalance towards growth and long-life ‘cash cow’ assets.”

Steady Cash Flow

MLNG Tiga, set up in 1995, is the third plant to be built in the Petronas LNG complex in Bintulu, Sarawak, according to itswebsite. The plant has a production capacity of 6.8 million metric tons a year.

Europe’s largest oil company by market value sold more than $20 billion of assets in 2014 and 2015 combined, Shell Chief Executive Officer Ben Van Beurden told analysts in February. It will likely see less than $10 billion of disposals this year, he said.

“The MLNG Tiga plant should be relatively insulated from the supply glut in the market, as most of its supply is contracted on a long-term basis to buyers in Northeast Asia,” said Chong Zhi Xin, principal LNG analyst for Wood Mackenzie in Singapore. “This asset will probably be attractive to companies that are looking for a steady cash flow stream. There is also the benefit of developing a closer relationship with Petronas.”

Shell regularly receives expressions of interest for its assets and continues to evaluate all opportunities and proposals, a spokeswoman for Shell said by e-mail, adding that all such discussions are confidential. Should any offer be received by Petronas, the company will evaluate it on its own merits, the Malaysian company said in an e-mailed statement.

Key Asia Aframax freight up 24% on day to three-month high

A spike in the activity levels for late October cargoes along with an increase in bunker costs boosted Asia Aframax freight rates 24% on the day to a three-month high Friday.

"Owners are tired of getting kicked around earning $3,000 per day on their ships. It's now a good market. Bunker prices are getting higher and there are lots of cargoes which encourages owners," said an Aframax shipowner.

Platts assessed the key Aframax Indonesia-Japan voyage up 17.5 Worldscale points on the day to w90 basis 80,000 mt. The rate was last at this level on July 12, Platts data showed.

Two vessels were heard on subjects at w90 out of the Southeast Asia region. Sources said Shell placed a Teekay vessel on subjects for a Kimanis to Whangarei voyage, loading October 23-25, at w90 basis 80,000 mt.

Also, SPC placed the BM Bonanza on subjects to replace the Sea Hazel for a Pluto to North Asia voyage, loading October 23, at w90 basis 80,000 mt, an informed source said.

"The charterers had been in the driver's seat since February this year except momentarily in March, and now time charter equivalent earnings have gone up to $11,000 per day," said a broker.

OPEC news headlines

Tullow Seeks Truckers for Early Shipments of First Kenyan Oil

Tullow Oil Plc’s Kenyan unit said it’s seeking trucking companies to transport crude from northwestern fields to the port city of Mombasa as the East African nation rushes to export its first oil by mid-2017.

The work will involve the trucking of crude in insulated containers from a production facility near Lokichar, Turkana county, to storage facilities run by Kenya Petroleum Refineries Ltd., Tullow Kenya BV said Friday in an advertisement in the Nairobi-based Daily Nation newspaper. It said it plans to lease 100 ISO T11 standard insulated containers with a minimum fluid capacity of 25,000 liters.

Kenya, which has about 750 million barrels of recoverable reserves, plans to construct a 865-kilometer (538-mile) pipeline linking the northern fields to a port being built on its Indian Ocean coastline by 2021. In the meantime, the government says initial production of about 2,000 barrels per day, expected by June next year, will be hauled by road and rail. Tullow’s statement didn’t mention rail transport and company spokesman George Cazenove didn’t immediately reply to an e-mail seeking comment.

Vancouver-based Africa Oil Corp. estimates the South Lokichar basin, about 510 kilometers northwest of the capital, Nairobi, may contain as much as 1.63 billion barrels of oil.

Making Losses

Kenya’s government has previously said the northern oil would be transported by road from Lokichar to Eldoret, a thoroughfare it’s upgrading for about 3.2 billion shillings ($31.6 million), then taken to Mombasa by rail.

While Kenya has about 60,000 barrels ready for export, it needs oil prices at $40-$50 per barrel to avoid making losses as the cost of road-shipping is estimated at $30-$34 a barrel, according to Andrew Kamau, the principal secretary for petroleum. Renaissance Capital’s chief economist, Charles Robertson, has said Kenya’s oil may not be economically viable even at $50.

Kenya is planning its own, shorter pipeline after Uganda abandoned an initial proposal for a joint line linking its oil-rich western Hoima region to Lamu port in Kenya. That conduit’s cost is estimated at $5 billion by Nagoya, Japan-based Toyota Tsusho Corp. Uganda prefers a $4 billion pipeline across Tanzania to that country’s Tanga port.

Attached Files

Traders chase dwindling oil refining profits

Trade firms that profited from the renaissance in global refining over the past two years are bracing for tougher times as ample stocks, dwindling volatility and newly powerful refineries in China squeeze opportunities, the chiefs of major trade houses told the Reuters Commodities Summit.

The oil price crash was a windfall for traders, who cashed in by helping the world manage the imbalance in supply and demand it created – for example, by ferrying gasoline churned out at a breakneck pace in Europe to millions of new car and motorcycle owners in India and China emboldened by cheaper fuel.

Traders also padded their profits through easier conditions created by contango – a market structure in which prices in the future are higher than those today. This allows them to make money just by holding onto oil and oil products, or even slowly shipping it from one region to another.

But trade house chiefs told the Reuters commodities summit that in 2016, and the year to come, these golden opportunities will become increasingly hard to find.

While Europe's refineries are still remarkably profitable – well after most industry experts thought the margins would have melted away – the money-making opportunities they created are fading.

Gasoline, said Glencore's head of oil Alex Beard, "really didn't perform the way many people expected, I think mainly because of an overhang of gasoline from last winter."

A strong refinery margin, along with a good contango, makes for an ideal trading environment, he said.

Beard warned that "the refining margin outlook is trending back to long-term historical averages, which is challenging to many," including Glencore.

Distillates, such as heating oil, diesel and jet fuel, have also flooded into the world's storage tanks. The ample availability means that traders can miss out on additional profits.

Traders are also warily eyeing China's independent refineries, dubbed "teapots", which were allowed late last year to start importing crude oil directly for the first time. Suddenly, Taylor said, these units "found everybody's number on their speed dial", and began churning products into the global market.

"China has started exporting some products at times. So the surplus tends to be pushed into international markets faster, when traditionally (when Chinese consumption outstripped production) they refrained from exporting products," said Mercuria chief Marco Dunand. "You have to be a lot more informed about internal product storage levels."

Even so, no one predicted a return to the crisis of the beginning of the decade for either refineries or traders.

"The market has been able to absorb a number of big (refinery) projects in the Middle East, China, India ... in a very short period of time," said Torbjorn Tornqvist, chief executive of Gunvor, noting these did not collapse margins

. "I don't think it's going to be as bad as it was three or four years ago, when it really was tough."

Nigeria LNG CEO claims amendment to 1989 law could affect investment

According to Reuters, Nigerian lawmakers are looking to modify the law that established the Nigeria LNG (NLNG) partnership in 1989.

NLNG is a public private partnership between Eni, Total, Royal Dutch Shell and state-owned Nigerian National Petroleum Corp. (NNPC), producing LNG for export. The CEO of the company, Tony Attah, has stated that this move has the potential to negatively impact investment.

The company is currently in the final stage of deciding whether or not it should invest in Train 7. This would cost approximately US$12 billion and increase the facility’s LNG exports from 22 million t to 30 million t.

However, Attah claims that lawmakers in Nigeria’s lower house are looking to cancel guarantees made by the government that helped pave the way for private investment in the company, as well as introduce levies paid by exploration firms equivalent to approximately 3% of the overall budget. Attah claims that LNG produced by the company for Asian and European markets was exempt from the levy under the 1989 act, and that the parliamentary amendement had gone for a public hearing.

Attah reportedly said: “Train 7 will not happen if we don't have the NLNG act as it is today. The amendments as proposed will not deliver value, they will erode value, they will not make NLNG grow.”

Attached Files

EU, Gazprom Close to Agreeing on Settlement Terms

Russia’s state-owned natural gas company OAO Gazprom and the European Union’s antitrust authorities are aiming to agree as soon as the end of October the terms of a settlement that would force changes to the way the company operates, according to people familiar with the matter.

Gazprom executives, Russian government officials and the European Commission, which is the bloc’s antitrust regulator, are expected to hash out the final details of the agreement in a high-level meeting at the end of the month, one of the people said.

The Russian government, which controls more than 50% of the company’s shares, has been actively involved in the settlement discussions, which are aimed at addressing the EU regulator’s long-running concerns that the energy giant harms competition and charges unfair prices in several Eastern European countries.

A settlement could help the company avoid billion-dollar fines in exchange for changes to the way the business operates. The discussions, however, could still go awry and no final plan has yet been signed off, the people stressed.

If the terms of the settlement are agreed, the plan would then have to be presented to the other countries affected by the case--a process that could take weeks.

The closing of the talks in the EU’s antitrust case comes as tensions mount between Russia and the West after a diplomatic breakdown over Moscow’s bombing of the Syrian city of Aleppo.

The EU’s handling of the Gazprom case has been swayed by diplomatic considerations in the past.

The EU’s initial probe into Gazprom stems from September 2011 and formal proceedings were opened a year later—well before the conflict in Ukraine ignited. In early 2014, EU regulators and Gazprom officials had been heading toward a settlement. But when Russia annexed the Crimean peninsula in March 2014, and talks subsequently stalled, the EU held off on filing charges, worrying that they would rile the Kremlin at a sensitive time.

Then last April, with its new Competition Commissioner Margrethe Vestager in charge, the EU filed formal charges against Gazprom.

The regulator alleged the state-controlled company breached the EU’s antitrust rules in eight countries where it is the dominant gas supplier—Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. The commission said restrictive terms in Gazprom contracts forced territorial constraints on customers, for instance by prohibiting them from re-exporting gas to another country. It also objected to Gazprom’s practice of tying the price of gas to that of oil.

While Gazprom has denied any wrongdoing, its management moved quickly to start settlement talks after the formal charges were issued last year.

As part of the agreement with the EU, Gazprom would have to untie the price of gas to oil. While the price of oil has plummeted in recent years, thereby also depressing gas revenue for Gazprom, it could always regain momentum in the future, raising costs for gas customers.

Some points in the settlement talks are still open. The commission has expressed willingness to allow Gazprom to charge customers different prices when customers want their gas exported to a different national market than originally agreed in the contract, the person said. But the EU and the company are still negotiating over how to calculate those prices.

When the commission presents the settlement plan to the other relevant countries, some nations could push back against the terms of the settlement if they deem them too favourable to the Russian state-owned gas giant.

The Truth About Permian Shale Break-Even Prices

Despite OPEC’s best efforts, shale boomers are still alive and kicking—at least some of them. More precisely, those that came first, chose the best acreage, and had the farsightedness needed to make it profitable in the long run, as well as some luck. At least that’s the conclusion of IHS Markit in a new study.

The market researcher’s study focused on the Delaware Basin, which is a particularly prolific part of the Permian. The study found that the best performers were the companies that entered the play first and knew more than most about the local geology, and named EOG Resources as the most successful in that area, thanks to its long presence in the Delaware Basin and the extensive knowledge of the equally extensive plays it is operating, according to author Sven Del Pozzo.

Because of its early entrance and higher-risk appetite, EOG and others like it now remain profitable even with $50 crude, unlike droves of other sector players that have either gone under or are about to, because they simply cannot bring their production costs down enough to survive in the current price environment.

But these best performers have more than just themselves to thank, according to another IHS expert, associate director for Plays and Basins Reed Olmstead. Olmstead explained at a recent industry event that there were four factors that determine oil and gas company success in this area. The first indeed included tactics such as picking and choosing where to drill, which accounted for 35 percent of the overall cut of their breakeven price, but 40 percent of the reduction came from price cuts made by the oilfield service sector – a segment of the oil industry that is having its own problems after being forced to offer service prices at a solid discount plus much shorter contracts to stay afloat.

The other two factors contributing to the success of the oldest Permian players were operational improvements, which accounted for 20 percent; and infield learnings, which accounted for 6 percent.

Meanwhile, the Permian remains the most productive of all shale plays across the U.S.

It’s apparent that luck had a bit to do with the success of those early entrants, but risk-taking was also a defining characteristic, according to Del Pozzo, who is IHS’ director of energy company and transaction research. In those early days of the shale revolution, these companies were the first to try horizontal drilling instead of the traditional, vertical kind.

Horizontal drilling is costlier than its vertical sibling, but it makes for better yields. Higher risk, but higher possible reward. The shale boom pioneers seem to be still reaping the benefits of these yields despite the price downturn.

In June of this year, energy expert Art Berman said that the breakeven in the Permian had gone down to $61 a barrel, making the play the lowest-cost deposits in the world. Still, crude oil prices at the time were notably lower than $61 (and still are).

Despite this discrepancy, the old dogs in the Permian survived. Today, the breakeven point in the Delaware Basin may be as little as $37, assuming the calculations of a Wood Mackenzie analyst, Ben Shattuck, are accurate.

In this light, local E&Ps are not just surviving, they are thriving. No wonder Del Pozzo titled his report “IHS Herold Company Play Analysis: Delaware Basin: The Strong Get Smarter; Remarkable Profitability at Current Prices.”

Alternative Energy

Scientists accidentally turn pollution into renewable energy

Scientists have accidentally discovered a way to reverse the combustion process, turning carbon dioxide back into a fuel.

Researchers at the Oak Ridge National Laboratory in the US used complex nanotechnology techniques to turn the dissolved gas into ethanol.

Because the materials used are relatively cheap, they believe the process could be used in industrial processes, for example to store excess electricity generated by wind and solar power.

The researchers had hoped the technique would turn carbon dioxide into methanol, but ethanol came out instead.

Dr Adam Rondinone, lead author of a paper about the experiment that was published in the journal ChemistrySelect, said: “We’re taking carbon dioxide, a waste product of combustion, and we’re pushing that combustion reaction backwards with very high selectivity to a useful fuel.

“You can use it [ethanol] in the current vehicle fleet, right now, with no modifications.

“Carbon dioxide is a problem right now. If we can use it, then we’re preventing it from going into the atmosphere.”

The team made a catalyst made from carbon, copper and nitrogen and an electric current was then used to trigger a reaction.

Get Ready for the Rooftop Solar Stall

This was supposed to be solar’s moment. Residential panel installations in the U.S. grew 71 percent in 2015 as the falling cost of panels made the power they generate more competitive. In December, Congress unexpectedly extended a tax credit set to expire at the end of 2016. Panel buyers will get reimbursed for 30 percent of the cost of new solar panels through 2019 and at least 22 percent through 2021.

Yet instead of energizing the industry, the extension has hurt growth, as solar companies no longer rush to meet a deadline. After jumping more than 1,000 percent since 2010, panel installations are projected to grow by only 0.3 percent in 2017, according to Bloomberg New Energy Finance. Faced with the industry’s first major slowdown, companies are figuring out their next move. “You’re selling the urgency to get in while the tax credits are available,” says Hugh Bromley, an analyst at BNEF. “Once you have long-term subsidy certainty, solar companies may struggle to reimagine their sales pitches.”

Falling power prices in some markets don’t help. Consumers looking to lower their bill might not get the savings they used to by installing a solar system. There’s also doubt over net-metering laws that require utilities to pay rooftop customers for the power they sell to the grid. Although 43 states have some version of net metering, according to BNEF, last year Nevada, one of the fastest-growing states for solar, added a fee for homes with panels and cut the amount utilities pay them for the power they add to the grid. The two top U.S. panel installers, Elon Musk’s SolarCity and Sunrun, promptly left the state, which in September agreed to grandfather prior rates for 32,000 existing customers.

Investors are demanding a reset of solar’s business model. “It was growth at all costs,” says Michael Morosi, an analyst at Avondale Partners. Now that the market isn’t paying for that growth, companies can “go for the most profitable customers,” he says. Solar companies have long relied on a leasing model, signing homeowners to 20-year contracts that require no money down. This ensured growth, but it also spread out revenue over decades. Now, solar companies are selling more units, which ensures they get paid sooner.

For SolarCity, the country’s top installer, cash sales and loan payments accounted for more than 30 percent of revenue in September, up from about 20 percent in the second quarter, says Chief Executive Officer Lyndon Rive. GTM Research, which conducts green tech market analysis, expects leasing to account for less than half of new installations in 2017, down from more than 70 percent in 2014. This is a mark of maturity for the $7.8 billion U.S. residential solar industry, says Benjamin Cohen, chairman of renewable-energy financing company T-Rex. “Installers can focus on what is the most efficient use of their balance sheet,” he says. “Maybe this moment says these companies shouldn’t be behemoths.”

Growth should resume by 2018, BNEF says. Only 1 percent of U.S. households have panels on their roofs. “Every other solar market during its period of retooling has faced a collapse of 20 to 90 percent,” says BNEF’s Bromley. “So for the U.S. to face a year or two of stagnation before continued growth is an overwhelmingly positive outcome.”

Attached Files

Official calls for ramping up China's photovoltaic industry

China's photovoltaic industry must develop a core technological edge to gain a stronger standing in the overseas market, instead of relying on low prices, said Liu Danyang, deputy director of the Ministry of Commerce's trade remedy and investigation bureau, at the opening ceremony of the Photovoltaic Conference & Exhibition of China on October 19.

According to the national strategic plan (2016-20), the commercialized new energy power installed capacity should reach 680 GW by 2020, with annual power generation of 1.9 GWh, accounting for 27% of the total power generation.

The target photovoltaic installed capacity by 2020 is 150 GW, up from 43.2 GW at the end of 2015. China has the largest photovoltaic installed capacity in the world.

Some of the challenges of China's photovoltaic industry are limited business models and lack of matching policies and facility. According to Wu Shengwu, deputy director of the Ministry of Industry and Information Technology's electronic information department, the ministry will help the industry to have more application in industrial parks, infrastructure for civil use and urban transportation.

The conference, held from October 18 to 21, also includes discussion and exhibition of wind power.

China's wind power energy industry must be free of subsidies to grow strong in the real sense, said Li Peng, director of the new and renewable energy department of the National Energy Administration.

Attached Files

China sets limit on annual rare earth mining volume by 2020

China announced Tuesday that it will limit its annual mining of rare earth within 140,000 tonnes by 2020 in its latest attempt to overhaul the sector and ensure its sound development.

The government will continue to investigate and apprehend anyone involved in illegal mining, processing or trade in rare earth metals and better manage market access, according to a rare earth development plan for the 2016-2020 period, released by the Ministry of Industry and Information Technology (MIIT).

Rare earth comprises a class of 17 mineral elements which are some of the most sought-after metals due to their vital role in green technologies like wind turbines and car batteries. They are also used for military purposes.

China is the world's largest rare earth producer and exporter, but the industry is beset by myriad problems, such as illegal mining, smuggling and a lack of competitiveness due to weak research and development.Excessive exploration has also caused environmental damage.

To upgrade the industry, the MIIT plans to improve efficiency across resource management and technological innovation by 2020.

During the 12th Five-Year Plan period (2011-2015), 14 illegal rare earth mines and 28 companies were closed. More than 36,000 tonnes of illegal rare earth products were seized, and 230 million yuan in fines was imposed, according to statistics from the MIIT.

‘Super grass’ to cut cow burp and fart emissions

Scientists aim to reduce the 90 million tonnes of methane cows produce by burping and farting each year by developing a new type of grass.

They say the “super grass” will be digested more efficiently by cattle so will produce less gas but more milk.

The £1.6 million project, which is expected to be ready by 2024, will see genetics experts from the University of Aarhus in Denmark use DNA technology to create a strand which could be grown on farms across the world.

Senior Researcher Torben Asp, who is overseeing the project, said: “It will simply create a better diet for the cow, which can utilise the feed more efficiently and therefore they don’t release as much methane when they burp.”

The US Food and Agriculture Organisation believes agricultural methane output could go up by 60% by 2030 if nothing is done.

Esben Lunde Larsen, Denmark’s’ Environment Minister, added: “We know that cattle are one of agriculture’s culprits when it comes to releasing greenhouse gases so it’s important that we explore how we can reduce cows’ emissions.

“It’s also a good example of future sustainable food production, in which there is a contradiction between growth and climate but production goes hand in hand with nature.”

UK botched its renewable energy programs, auditors report

The UK government miscalculated the costs of renewable-energy support and is likely to overshoot its 7.6 billion-pound ($9.2 billion) annual budget by about a fifth in 2020 and 2021, according to auditors.

The “government’s forecasting, allocation of the budget and approach to dealing with uncertainty has been poor, and so has not supported value for money,” Amyas Morse, head of the National Audit Office, said Tuesday in an e-mailed report.

The support mechanism, known as the levy control framework, was established by the UK’s Department of Energy & Climate Change, subsequently renamed by Prime Minister Theresa May’s government to the Department of Business, Energy & Industrial Strategy. It sets annual caps on costs for clean energy such as feed-in tariffs, renewable obligation certificates and contracts for difference.

The audit cited revised framework costs of 9.1 billion pounds between 2020 and 2021. That would add 110 pounds to a typical household dual-fuel energy bill, about 17 pounds more than if it had remained within budget.

The UK’s generous subsidies for renewables resulted in a rapid build-out of solar and wind farms. The overcast northern European country has 9.2 gigawatts of solar farms installed, according to data from Bloomberg New Energy Finance. The government reduced those programs in 2015 and ended one for onshore wind a year early.

Most of the allocated government funds have been spent and there is little left over to fund new projects between now and 2021. It would have been more cost effective to spend more of it later as technologies such as wind turbines and solar panels are much cheaper now than they were a few years ago, the auditors said.

The levy control framework has also failed to adequately support investor confidence in the sector, they said. Issues include the “short and decreasing timeframe and a lack of transparency over forecasts and how the budgetary cap would operate.”

Attached Files

Tesla, Panasonic to collaborate on solar manufacturing

Elon Musk's Tesla Motors said it would collaborate with its longstanding battery partner, Japan's Panasonic Corp, to manufacture solar cells and panels at a New York factory.

The agreement, a non-binding letter of intent, is contingent on shareholder approval of Tesla's acquisition of SolarCity Corp, the electric car maker said in a statement issued late on Sunday. Financial terms were not disclosed, but officials in New York said production would take place at a factory SolarCity is building in Buffalo.

Panasonic is expected to begin production at the Buffalo facility in 2017 and Tesla intends to provide a long-term purchase commitment for those cells.

Tesla said it will use the cells and modules in a solar energy system that will work seamlessly with its energy storage products Powerwall and Powerpack.

Tesla is acquiring SolarCity, in which Musk is also a large shareholder and is run by his first cousins, as part of a strategy to build a clean-energy consumer brand.

Last year, SolarCity said it would manufacture a new kind of solar panel at the plant that would be the most efficient yet at transforming sunlight into electricity.

SolarCity has pledged to spend $5 billion over 10 years on its RiverBend factory in New York in return for $750 million in tax breaks and other investments by the state. The state funding is part of New York Governor Andrew Cuomo's pledge to spend $1 billion on economic development in the Buffalo region.

A Panasonic spokeswoman in Japan declined to offer details on the collaboration. SolarCity and Tesla did not immediately respond to queries sent to a SolarCity spokeswoman who said she could direct questions to both companies.

Panasonic is already working with the U.S. automaker to supply batteries for the Model 3, Tesla's first mass-market car.

Tesla and SolarCity Corp shareholders are scheduled to vote on the proposed merger on Nov. 17, and the automaker said it would provide plans for the combined company ahead of the vote.

Sweden proposes measures to strengthen carbon prices

Sweden has proposed measures to strengthen carbon prices from 2020, the country's climate minister told Reuters on Monday, seeking to soak up the glut of credit in the EU Emissions Trading System (ETS).

A European bill to reform the ETS system to make big polluters pay for emissions is being debated by EU lawmakers and member states, but Sweden's climate minister Isabella Lovin has presented new proposals to 13 EU environment ministers with the aim of putting a ceiling on emmissions.

"The ETS system is not working now and we don't see that the (European) Commission's proposal is sufficient in making sure that the price signal is strengthened," Lovin said after a meeting with the 13 ministers who call themselves the Green Growth Group.

Prices under the ETS scheme have plummeted to 6 euros from highs above 30 euros in 2008 and are well below the level companies say is needed to spur investment in technology to cut emissions.

Lovin's proposals included a firming up of the Market Stability Reserve (MSR) to remove some of the surplus allowances, scrapping permits above a set ceiling and the possible introduction of an expiration date to cancel surplus permits after five years.

France has also announced plans for a carbon price mechanism to help to fix the ETS, but other EU nations fear that tougher pricing could push industry to relocate abroad.

While the Swedish proposals touch on a plan to tighten the rate at which permits should be removed from the market from 2020-2030, Lovin said doing so is politically difficult.

The European Parliament's industry committee have backed keeping what is known as the linear reduction factor at the 2.2 percent annual rate proposed by the Commission.

The chamber's Environment Committee, which has the main responsibility for reforms, favours a faster pace of reduction to take into account the goals of the Paris Agreement on climate change, which was thrashed out by 195 nations last December.

It will vote on its amendment to the proposal in December.

Ian Duncan, who is shepherding the EU bill through the European Parliament, said last week that he was considering potential tweaks to the MSR, which would have a bullish effect on prices.

"I want to look at the market stability reserve again. I want to look at it now. Take allowances out of it now," he told the Carbon Pulse Carbon Forward conference.

In its drive for a more ambitious ETS, Sweden is also pioneering a programme to purchase and then scrap 30 million euros of carbon credits a year -- equating to about 10 percent of its total emissions -- from 2018 to 2040.

"This is also a way for us to show our ambition and that we are serious about this," Lovin said.

Uranium

EDF ordered to switch off five reactors

The company building Britain’s first nuclear power station for 21 years has been ordered to shut down five more reactors in France for emergency tests.

The order from the French Nuclear Safety Agency is a further blow to the finances and reputation of EDF, the state-owned company behind plans to build an £18 billion nuclear power plant at Hinkley Point in Somerset.

It brings to 12 the total number of French reactors being examined by experts to determine whether they contain hidden weaknesses in their reactor pressure vessels, a key component that houses the reactor.

Tepco shares slump after anti-nuclear novice wins Japan election

Shares in Tokyo Electric Power (9501.T) fell 8 percent on Monday after an anti-nuclear candidate won an upset victory in a Japanese regional election, in a blow to its attempts to restart the world's biggest atomic power station and a challenge to the government's energy policy.

The election of Ryuichi Yoneyama, 49, a doctor-lawyer who has never held office, is a setback for Prime Minister Shinzo Abe's energy policy, which relies on rebooting reactors that once met about 30 percent of the nation's needs. All but two are shut down in the wake of the 2011 Fukushima nuclear disaster.

Reviving the seven-reactor giant, with capacity of 8 gigawatts, is key to saving Tepco, which was brought low by the Fukushima explosions and meltdowns, and then the repeated admissions of cover-ups and safety lapses after the world's worst nuclear disaster since Chernobyl in 1986.

Yoneyama won the vote on Sunday after a campaign dominated by concerns over the future of the Kashiwazaki-Kariwa power station and nuclear safety, beating Tamio Mori, 67, who was backed by the ruling Liberal Democratic Party (LDP) and initially favored for an easy victory.

"As I have promised all of you, under current circumstances where we can't protect your lives and your way of life, I declare clearly that I can't approve a restart," Yoneyama told supporters at his campaign headquarters.

Tepco shares were down by 7.4 percent at 385 yen at 0100 GMT (09:00 p.m. EDT) after falling further earlier. The Nikkei 225 was up by 0.5 percent and other utilities were mixed.

Yoneyama had more than 500,000 votes to about 430,000 for Mori with 93 percent of the vote counted in the region on the Japan Sea coast, public broadcaster NHK said.

Mori, a former construction ministry bureaucrat, apologized to his supporters for failing to win the election.

Yoneyama, who had run unsuccessfully for office four times, promised to continue the policy of the outgoing governor who had long thwarted the ambitions of Tepco, as the company supplying about a third of Japan's electricity is known, to restart the plant.

As the race tightened, the election became a litmus test for nuclear safety and put Abe's energy policy and Tepco's handling of Fukushima back under the spotlight.

"The talk was of Kashiwazaki-Kariwa, but I think the result will affect nuclear restarts across the country," said Shigeaki Koga, a former trade and industry ministry official turned critic of nuclear restarts and the Abe administration.

Koga told Reuters it was important that Yoneyama join forces with another newly elected governor skeptical of nuclear restarts, Satoshi Mitazono of Kagoshima Prefecture in southern Japan. "Without strong support from others, it won't be easy to take on Tepco," he said.

TROUBLES

Tepco spokesman Tatsuhiro Yamagishi said the company couldn't comment on the choice of Niigata governor but respected the vote and would strive to apply the lessons of the Fukushima disaster to its management of Kashiwazaki-Kariwa.

The government wants to restart units that pass safety checks, also promoting renewables and burning more coal and natural gas.

Only two of Japan's 42 reactors are running more than five years after Fukushima, but the Niigata plant's troubles go back further.

Several reactors at Kashiwazaki-Kariwa have been out of action since an earthquake in 2007 caused radiation leaks and fires in a disaster that prefigured the Fukushima calamity and Tepco's bungled response.

Niigata voters opposed restarting the plant by 73 percent to 27 percent, according to an NHK exit poll.

Yoneyama, who has worked as a radiological researcher, said on the campaign trail that Tepco didn't have the means to prevent Niigata children from getting thyroid cancer in a nuclear accident, as he said had happened in Fukushima. He said the company didn't have a solid evacuation plan.

The LDP's Mori, meanwhile, was forced to tone down his support for restarting the plant as the race tightened, media said, insisting safety was the top priority for Kashiwazaki-Kariwa, while promoting the use of natural gas and solar power in Niigata.

Attached Files

Agriculture

Seed firm Vilmorin doubts farmer appetite for all-in offerings

Seed firm Vilmorin doubts farmer appetite for all-in offerings

Vilmorin will remain a specialist seed maker and is sceptical farmers will take to the bundled agricultural product offerings that have encouraged multi-billion merger deals in the farm supplies sector, the French firm's chief executive said.

Bayer's planned $66 billion purchase of Monsanto , unveiled last month, followed ChemChina's deal to acquire Syngenta and a merger agreement between Dow Chemical and DuPont - moves designed to bring scale and broader product ranges during a downturn in many agricultural markets.

"We're a pure play seed company, unlike the other players," he said following a press conference. "We have plenty to do with our three priorities, without getting dispersed."

Like BASF, which has cast doubt on the one-stop shop logic pursued by Bayer in acquiring Monsanto, Vilmorin said the case had yet to be proven that farmers want to buy services from pesticides to weather data from one provider.

"As part of a farmer cooperative group, we find it hard to imagine that farmers will want to have someone dictate to them how to run their farms from A to Z," Rougier said.

Vilmorin, majority owned by French cooperative Limagrain, had a team looking at ways to develop information services for clients to support seed sales, but had no plans to invest massively in so-called big data projects, he said.

The trio of mega-merger deals would on paper reinforce the current position of Monsanto, Dupont and Syngenta as the world's biggest seed makers, but it could take two or three years for the companies both to obtain regulatory approval and reorganise their activities, he said.

Vilmorin did not see obvious acquisition opportunities for itself arising from asset sales required for regulatory clearance, Rougier said earlier during a presentation of the group's 2015/16 results.

Likely markets for regulatory scrutiny would be cotton in the United States and canola in Canada, two markets which Vilmorin had no plans to enter, he said.

In vegetable seeds, the multitude of varieties would make it hard for regulators to see a dominant position, while Vilmorin itself already had large positions as the world's second-largest producer behind Monsanto, he added.

Vilmorin reported on Wednesday that its net profit for the year to June 30 fell to 60.8 million euros from 75.9 million in 2014/15.

Its field crop division, which had been a drag on 2015/16 profits, would continue to face difficult conditions in Europe due to low grain prices for farmers, it said.

ISS recommends investors back Agrium-Potash Corp merger

ISS recommends investors back Agrium-Potash Corp merger

Investor advisory company Institutional Shareholder Services (ISS) has recommended that investors in fertilizer producers Agrium Inc (AGU.TO) and Potash Corp of Saskatchewan (POT.TO) support a merger of the companies.

The decision was distributed to ISS clients on Friday and sent to media on Monday. The combination would create a company with significant leverage, ISS wrote in its report.

Precious Metals

Seabridge Gold Discovers New Higher Grade Zone at KSM

Seabridge Gold Inc. today announced that a core hole drilled this summer to test the Iron Cap Lower Zone at depth has successfully found the down plunge extension of Iron Cap’s higher grade core while also discovering a previously unknown deposit with initial gold and copper grades among the best found to date on the KSM Project. Early indications are that the new discovery could represent a new core zone with a potentially positive impact on the project. The newly discovered zone is being evaluated for additional drill testing in 2017. The KSM Project in northwestern British Columbia is wholly-owned by Seabridge.

Drill hole IC-16-62 was collared well north of previous drilling in an area covered by rubble and ice which had prevented surface mapping and geophysical surveys. The hole was designed to be “steered” into the target zone using down hole navi-drilling tools to obtain an intersection below the existing resource of the Iron Cap Lower Zone and about 400 meters below the intersection in drill hole IC-14-59 (593 meters of 1.14g/T gold, 0.37% copper and 3.7g/T silver). The new hole confirmed the extension of the Iron Cap Lower Zone over an interval of 556 meters at 0.83g/T gold, 0.24% copper and 4.4g/T silver in rocks that closely resemble IC-14-59. This intersection is likely to increase the inferred resource for this deposit. (see www.seabridgegold.net/pdf/NOct18-16-map.pdf)

In the shallow part of hole IC-16-62, a distinctly separate mineralized zone was also intercepted, yielding a 61 meter interval averaging 1.2 g/T gold, 0.95% copper and 4.1 g/T silver. This zone consists of an intensely-veined porphyritic intrusive rock similar to KSM’s Mitchell deposit, juxtaposing against the disseminated silica-potassic alteration of Iron Cap along a normal fault. Although the scale of this discovery is not yet known, it rests below the Sulphurets Thrust Fault as do the other major deposits at KSM, it bears evidence of a powerful mineralizing system and its mineralogy closely resembles the higher-grade core zones found on the KSM property.

Seabridge Chairman and CEO Rudi Fronk commented: “Once again, exploration at KSM continues to generate upside surprises. Since 2012, our exploration focus at KSM has been to find core zones with higher grade material to improve overall project economics. This focus resulted in the discovery of the higher grade Deep Kerr and Lower Iron Cap zones. Earlier this month, we released the results of a Preliminary Economic Assessment including these new deposits and the potential impact on economics was highly significant.” (see http://seabridgegold.net/News/Article/630/).

“Although we have only one hole into it, this new discovery has all the same hallmarks that proved to be relevant in the first holes drilled into Deep Kerr and Lower Iron Cap and which led us to pursue these deposits. Our exploration team thinks this discovery could be the elusive Mitchell North deposit which they have hypothesized since 2009,” said Fronk.

Attached Files

Yamana Gold to spin off Brio subsidiary as standalone company

Canadian miner Yamana Gold said on Monday it plans to spin off its Brio Gold subsidiary, which owns non-core gold mining properties in Brazil, as a standalone public company to its shareholders.

Yamana, a mid-sized gold producer, last November tried to reduce its 100 percent stake in Brio through a private share placement but later suspended that plan, citing poor market conditions.

In the latest move, Yamana shareholders will receive purchase rights in Brio as a dividend in-kind, which they can use to buy shares in the unit. The exercise price will depend on market demand.

Yamana would retain an unspecified stake in Brio.

The Toronto-based producer said a spin-off would allow it to "better focus on its portfolio of six, soon to be seven, producing mines in top mining jurisdictions and on its organic growth pipeline".

Yamana, which has operations in Canada and South America, will use proceeds from the exercise of the purchase rights and any direct sales of Brio shares to reduce debt. Brio would not get any of the proceeds.

Asanko to exceed H2 production guidance, following ‘exceptional’ third quarter

TSX- and NYSE-listed Asanko Gold expects to produce gold on the upper end of its updated guidance for the final six months of the year after achieving ahead-of-plan output of 53 986 oz at its Asanko mine, in Ghana, during the third quarter of the year.

Fourth-quarter production from Phase 1 of the Asanko mine, of between 52 000 oz and 57 000 oz, is expected to push output for the second half of the year to between 106 000 oz and 111 000 oz.

This is above the revised second-half guidance of 100 000 oz to 105 000 oz.

“The operations had an exceptional quarter with the process plant now running at 300 000 t/m, or about 20% abovedesign. The ore grade from the Nkran pit continued to increase during the quarter with most of the ore now coming from the main mineralised domains within the heart of the deposit,” said Asanko president and CEO Peter Breese.

This strong performance is expected to position the company to finance its Phase 2 expansion project with cash flowgenerated from the operations.

With gold sales of 54 393 oz at an average price of $1 311/oz during the three months to September 30, Asanko generated revenue of $71.3-million.

“The company’s balance sheet strengthened during the quarter with approximately $69.4-million in cash and immediately convertible working capital balances, as at September 30,” Breese pointed out, adding that there are currently no significant current long-term debt obligations, with its first principal repayment on its $150-million debt facility only due in 2018.

Asanko will release its third-quarter financial results on November 7.

Base Metals

Top copper miner gets reprieve as Chile signals more funding

Codelco’s prospect of remaining as the world’s biggest copperminer received a boost on Thursday as Chile signalled it will increase funding for the state company to overhaul aging mines and head off a slump in output.

Chile is already investing a lot in Codelco and will have to provide “slightly more” as a law that gives 10% of its sales to the military drains reserves, Finance Minister Rodrigo Valdes said in an interview in New York. A funding decision is scheduled for next month.

"President Bachelet decided we need to mitigate as much as possible this year and next year the effect of this law on Codelco’s debt, and that will mean we need to capitalize Codelco slightly more,” Valdes said. “How much? We are doing the calculations."

Codelco is racking up debt as it attempts to complete a $19-billion investment program in its aging mines after copper prices tumbled more than 50% since 2011. Complicating the situation still further, Valdes is trying to find money for Codelco as the budget deficit reaches its second-highest since the return to democracy 26 years ago amid mounting social demands. The copper slump has deprived the government of revenue equivalent to 4% of gross domestic product, he said.

In that context, Chile must discuss the four-decades-old law that gives the Chilean armed forces revenue from a tenth of its sales, Valdes said.

The ratio of Codelco’s net debt to earnings before interest, depreciation and amortization, or Ebitda, surged to 8.8 at the end of last year, from 3.4 times a year earlier as it sold bonds to finance the investment plans.

"This year and next year we have to take debt out of Codelco, of this excess debt they had to issue because of the copperlaw,” Valdes said.

A bill to scrap the copper law, which was created in its current form by late dictator Augusto Pinochet, has been languishing in Congress since 2011, when copper traded above $4 a pound amid surging Chinese demand. Now the metal is about $2.09 a pound.

Codelco gave the military as much as $14.3-billion between 2000 and 2015 -- money the company could have used to invest in its aging mines, Codelco chairperson Oscar Landerretche told a committee. Codelco reinvested 9.6% of its profits over the last ten years, compared with an industry average of 38.5%, he said.

China's aluminium producer Chalco returns to profit in Jan-Sept

Oct 20 China's state-owned Aluminum Corporation of China Ltd (Chalco) swung back to profitability in the first nine months, buoyed by higher metal prices and continued cost-cutting efforts, the company said on Thursday.

Chalco posted a net profit of 107.9 million yuan ($16.02 million) in the January-September period, compared with a net loss of 974.6 million yuan a year earlier, it said in a filing to the Hong Kong stock exchange.

The gains came as the company, one of the world's top producers, benefited from the continued rise in aluminium prices .

China says will limit non-ferrous metals expansion in 5-year plan

China's government said it would strictly control the expansion of its non-ferrous metals industry, encourage continued consolidation and boost proven ore reserves by 2020 as part of its five-year development plan for the industry.

In a statement released late on Tuesday, the Ministry of Industry and Information Technology (MIIT) said it will limit new production capacity expansions in the copper, aluminium, zinc and lead sectors.

Turquoise Hill announces lower third quarter 2016 production

Turquoise Hill Resources today announced third quarter 2016 production for Oyu Tolgoi.

Jeff Tygesen, Turquoise Hill Chief Executive Officer, said, "Oyu Tolgoi performed as expected during the third quarter as open-pit operations focused on Phases 3 and 6 after the high-gold Phase 2 was nearly complete in Q2'16. Despite the lower copper and gold production in the quarter, we are confident in our ability to achieve the higher end of our annual guidance."

Oyu Tolgoi set an all-time high in Q3'16 for quarterly material mined of more than 25 million tonnes. This record includes stripping for Phase 4, which is the next area of high-grade ore. In Q3'16, concentrator throughput declined 4.0% over Q2'16 due to planned maintenance and conveyor belt repairs. Copper production in Q3'16 declined 9.9% over Q2'16, as a result of lower recovery from Phase 6 ore. As expected, gold production in Q3'16 declined 47.1% over Q2'16 due to lower grades from the completion of mining Phase 2.

The Company continues to expect Oyu Tolgoi to produce 175,000 to 195,000 tonnes of copper in concentrates and 255,000 to 285,000 ounces of gold in concentrates for 2016.

BHP spends $2 million a month on nickel unit as recovery looms

A sign adorns the building where mining company BHP Billiton has their office in Perth, Western Australia, November 19, 2015. REUTERS/David Gray/File photo

BHP Billiton's nickel business, which faced closure after failing to attract a buyer, is spending $2 million a month on improvements and making headway to extend operations through the next decade, a senior executive said on Thursday.

Nickel prices have climbed 17 percent this year after a crippling supply glut drove the market into near-free fall 2-1/2 years ago. Global demand rose 6.1 percent over the eight months to end-August, led by an 8 percent rise in China and strong gains in India and China, industry data showed.

"There are signs that this year could finally be the turning point for nickel," Eduard Haegel, president of BHP's Nickel West mining and processing unit told a mining conference.

"For the last 10 months and for the remainder of this year and next year, Nickel West is committed to spending $2 million a month," Haegel added, with the funds being used to address structural needs.

He also flagged a potential return to the development of a promising but as-yet unexploited mine named Yakabindie, stalled since the 2008/09 financial crisis because of its $1.1 billion price tag.

The new mine is believed to hold 350,000 tonnes of nickel - a fifth of annual world demand - and would help support Nickel West until at least 2032, Haegel said.

It was less than two years ago that 2,000 Nickel West workers were told to expect operations at the 44-year-old plant in western Australia to end by 2019 after the high-cost, low-grade operation failed to find a buyer.

In 2013, BHP booked a $1.25 billion after-tax impairment on the assets. Nickel West has since been designated "non-core" by BHP's board.

Potential buyers including Glencore, First Quantum and China's Jinchuan Group walked away two years ago, put off by plummeting nickel prices and fearful of being left with $1 billion-plus in closure costs.

Democratic Republic of Congo state miner Gecamines has challenged Freeport McMoRan Inc's sale of its majority stake in the Tenke copper mine at the International Court of Arbitration in Paris, Gecamines said on Wednesday.

Gecamines Secretary-general Deogratias Ngele told Reuters that Gecamines had asserted a right of first offer following Freeport's agreement in May to sell its 56% stake in Tenke, one of the world's largest copper mines, to China Molybdenum for $2.65-billion.

Attached Files

Unionized workers at Chile's state-owned copper miner Codelco are mulling going on a company-wide strike, possibly by mid-November, if the government does not make progress on a number of demands, union leaders told Reuters on Tuesday.

Codelco, the world No. 1 copper producer, returns all its profits to the state and is funded by a mixture of capitalization and debt. The recent sharp downturn in the copper price has hit it hard when it needs to invest in new projects to keep output flowing, forcing it to scale back ambitious expansion plans.

The Copper Mining Federation (FTC), which serves as the umbrella organization for Codelco's unions, will ask Chile's government for permanent capitalization for the company and to overturn a law that requires that 10 percent of Codelco's revenues support Chile's defense budget.

"By (mid-November) we could be organizing a strike if we don't have a response from the government," said Marcelo Perez, director of the Caletones union at Codelco's underground El Teniente mine.

According to Perez, the unions have not decided how long the strike could last. However, Liliana Ugarte, who heads one of the unions at the open-pit Chuquicamata mine, said on Friday that if workers were to go on strike it would likely last 24 hours.

"We're going to get in touch with the Senate, Finance Ministry and the President of the Republic and following all those conversations we will again meet no more than 15 days later and see if our demands have been met. If not we will call for a 24-hour national strike, as a warning," said Ugarte.

Codelco produced 843,000 tonnes of copper in the first half of the year.

Nova commissioning starts ahead of schedule

Commissioning of the nickel processing plant at the Nova project, in Western Australia, has started some four weeks ahead of schedule, owner Independence Group has reported.

The processing plant construction, which included wet commissioning, was completed on October 10, and crushingand milling operations started four days later, following several days of operating on waste to test all systems in slurry.

“The ore commissioning commencement is a great milestone for the Nova project and, combined with the progress that has been achieved with the underground development, marks a significant reduction in the development risk profile of theproject,” said Independence MD and CEO Peter Bradford.

“We now expect that we will produce first concentrate, ahead of time, in November and potentially by late October.”

Bradford noted that the project continued on budget.

Over the coming weeks, Independence will focus on calibrating the processing plant control systems and achieving design concentrate grades and recoveries. The last phase of the commissioning process will be the commissioning of the concentrate filters and production of first concentrate.

At full production, the A$443-million Nova project was expected to deliver about 26 000 t/y of nickel, 11 500 t/y ofcopper and 850 t/y of cobalt over a ten-year mine life.

In July this year, Independence announced plans to accelerate the development of the Bollinger orebody at Nova, with early access to the deposit expected to deliver enhanced early cash flow and additional project value.

Steel, Iron Ore and Coal

Brazil prosecutors charge 21 with homicide for Samarco dam spill

Brazilian prosecutors charged 21 people with qualified homicide on Thursday for their roles in the collapse of a tailings dam at the Samarco Mineração SA iron ore mine last November that killed 19 people.

The charges follow what is now considered to be the largest environmental disaster in Brazil's history. The dam collapse released millions of tonnes of muddy mine waste, wiping out several small communities.

BHP, Vale and Samarco officials said in statements that they rejected the charges and would defend their employees and executives. VOGBR declined to comment.

Vale, BHP and Samarco agreed in March to pay an estimated 20 billion reais ($6.37 billion) over 15 years in civil damages, but the accord is being challenged by state prosecutors.

Prosecutor Jose Leite Sampaio told reporters at a briefing in Belo Horizonte, broadcast live by GloboNews, that executives at Samarco had clear awareness the dam could fail but ignored the risks and prioritized profit.

There were signs that the dam was unsafe for several years before its collapse, but Samarco officials, executives, employees and board members appointed by Vale and BHP failed to take proper action, Sampaio said.

Prosecutors also said safety and regulatory procedures were not properly followed, including those in the company's own operating manual.

If convicted the accused, who include 16 Brazilians, two Americans, a Briton, a South African, an Australian and a French citizen, could face sentences of up to 54 years, prosecutors said. The former chief executive of Samarco, Ricardo Viscovi, is among the accused. Charges against one of the suspects did not include homicide.

Following the collapse, thick reddish-brown sludge flowed into one of Brazil's main rivers, the Rio Doce, killing fish and fouling water supplies for hundreds of km (miles) before reaching the Atlantic Ocean.

Before the case goes to trial, the charges need to be approved by a judge. Prosecutors filed the charges with a judge in Belo Horizonte, Brazil earlier in the day.

"These people were murdered," Eduardo Santos de Oliveira, one of the prosecutors in the case, said of those who died.

Vale said in a statement that prosecutors ignored evidence that executives were unaware the dam could fail before the disaster occurred.

Attached Files

Does This Secret $150 Million Payment Show A Coal Rebound Coming?

Big week for coal. With prices for Australian thermal jumping above $100 per tonne for the first time since 2012.

That marks a 100% rise in thermal coal since June. A move that’s been driven by declining production from China — as that country shuts down excess capacity. As well as surprisingly strong demand from Asian consumers.

And news in a further afield location this past week shows it’s not just Asia that’s driving consumption. Demand is in fact surging in Western markets — even in places that have vowed to get rid of coal power.

One of those spots is Britain. Where reports showed that plans to scrap coal power entirely have not gone well — and in fact coal plants are seeing a resurgence in interest from power buyers, to help head off blackouts.

The Telegraph reported over the weekend that Britain’s National Grid is actually making a move back to coal power. After lawmakers had attempted to do away with such power sources earlier this year.

The problem is that, with coal out of the mix, Britain’s power supply has been stretched to the limit. As the chart below shows, spare electricity capacity (“margin” — dark red) is at its lowest level in over a decade.

But the chart also shows how Britain’s power generators are meeting this challenge. By using “emergency measures” — namely, calling old coal plants back into service.

The Telegraph found that National Grid is actually paying 10 “retired” coal plants to be ready on standby — in case they need to fire up again to prevent a blackout. All told, the utility is forking over 122 million pounds ($150 million) just to have this capacity available, with millions more in payments expected if the plants are actually called into service.

All of which shows that the dream of clean energy is meeting some hard realities in this key market. Which may give lawmakers here and elsewhere a pause when they consider getting rid of coal-fired capacity.

That could mean the much-touted demise of coal is not quite happening yet. Watch for a potential rebound in demand, which may sustain prices higher and longer than many observers are anticipating.

Attached Files

Russian SUEK Jan-Sep coal output rises 15pct

SUEK, one of the largest coal companies in the world and the number one coal producer in Russia, has announced that it produced 78.9 million tonnes of coal during the January to September 2016 period, which represents a 15% increase from the year-ago level.

Sales for the first nine months of the year increased by 5% year-on-year and amounted to 74.1 million tonnes of coal.

Domestic coal sales remained the same as last year. 36.1 million tonnes were sold to Russian customers, of which 29.2 million tonnes were shipped to Russian electric power plants.

International sales increased by 10% on the year and amounted to 38 million tonnes of coal. China, South Korea, Japan, the Netherlands, Taiwan, India, and Germany were the main international markets for SUEK in the reporting period.

Attached Files

Glencore to sell Australia coal haulage unit for $874 mln

Mining and trading giant Glencore Plc agreed on Thursday to sell its Australian coal haulage business GRail to Genesee & Wyoming Inc for A$1.14 billion ($874 million), advancing its effort to slash debt.

Genesee & Wyoming, which will sell down 49 percent of the business to funds managed by Macquarie Infrastructure and Real Assets (MIRA), beat Australia's top two coal haulers, Aurizon Holdings and Pacific National, in the bidding.

"We are very pleased with the outcome of the sale process and look forward to continuing our constructive working relationship with Genesee & Wyoming in the years ahead," Glencore's coal head Peter Freyberg, said in a statement.

The price Glencore fetched was in line with expectations, and takes its asset sales this year to $4.7 billion, within its target range, putting it on track to cut net debt to between $16.5 billion and $17.5 billion this year.

Genesee & Wyoming, which already operates GRail for Glencore, said the acquisition would double the size of its Australian business and boost its earnings before interest, tax, depreciation and amortisation in 2017 by A$100 million.

"We are pleased to be enhancing our existing relationship with Glencore through a two-decade rail haulage contract that provides for exclusive rights to rail shipments from some of the premier steam coal mines in the world," G&W President Jack Hellman said in a statement.

Earnings from GRail, which hauls about 40 million tonnes a year of coal, are expected to grow to A$150 million in the medium term, backed by its long-term contract with Glencore, G&W said.

The deal is expected to close on Dec. 1, assuming G&W wins approval from Australia's Foreign Investment Review Board.

Rival bids from Aurizon and Pacific National, Australia's dominant coal haulers, had sparked concerns with Australia's competition watchdog, which said it would welcome a third competitor in the Hunter Valley. It was due to rule on their bids in December.

A source familiar with the deal said G&W's bid was higher than the other two.

BHP Billiton Q3 thermal coal output stands at 6.9 mln T

BHP Billiton, the world's largest mining group by market capitalization, saw its thermal coal production take a hit over July-September due to adverse weather conditions, but the company has maintained its guidance for fiscal 2016-2017 (July-June) unchanged at 30 million tonnes, it said in its quarterly operational review on October 19.

The company's thermal coal output totaled 6.88 million tonnes in the third quarter, down 4% on year but up 9% from the last quarter, the report said.

The total comprised production from its Australian and Colombian assets, and excludes volumes from its American New Mexico Navajo Mine which BHP completed divested on July 29.

In Australia, BHP produced 3.95 million tonnes of thermal coal in the third quarter, down from 4.64 million tonnes a year earlier, and from 3.99 million tonnes over April-June.

Colombian production stood at 2.93 million tonnes over the same period, compared with 2.53 million tonnes in the same period last year and 2.33 million tonnes the previous quarter.

Prior to the divestment, BHP produced 451,000 tonnes from its US assets.

"New South Wales Energy Coal production declined by 15%, mainly due to heavy rainfall and rescheduling of the mine plan based on individual pit economics. This partially offset a 16% increase in volumes at Cerrejon of Columbia compared to the third quarter in 2015 which was constrained by drought conditions," the company said.

BHP's New South Wales Energy Coal consists of the Mt Arthur Coal open-cut thermal coal mine in the Hunter Valley region of New South Wales, Australia, and in Colombia it has a one-third interest in Cerrejon, which operates one of the world's largest open-cut export coal mines, located in La Guajira province.

China Shenhua Sep coal sales up 15.7pct on year

China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 36.2 million tonnes of coal in September, rising 15.7% year on year and up 5.54% month on month, as sales of outsourced coal surged 59.2% on year and 25.6% from August to 11.3 million tonnes, the company announced in a statement late October 19.

The company sold 288.2 million tonnes of coal over January-September, gaining 3.33% from the year prior, it said.

Coal sales via northern ports in September climbed 0.51% from August and up 16.6% on year to 19.7 million tonnes, with those shipped from Shenhua's exclusive-use Huanghua port at 14.8 million tonnes or 75.1% of its total in the month, climbing 48% on year and up 4.96% on month.

Total coal sales via northern ports stood at 170.3 million tonnes in the first nine months, up 11% on year.

Meanwhile, the company produced 25.4 million tonnes of coal in September, rising 14.4% on year and up 3.25% on month. The output over January-September increased 1.3% on year to 213.3 million tonnes.

Shenhua Group had been approved to increase production from September this year, in a bid to curb fast rise of domestic coal prices caused mainly by persisting tight supply.

14 coal mines of the company were allowed to boost output by combined 2.79 million tonnes a month.

Glencore signs Q4 coking coal contracts at $200/t

Glencore had managed to reach the fourth quarter settlements with a few north Asian steel mills in the past week for its Oaky premium mid-vol coking coal at $200/t FOB, which was more than double the $92.50/t FOB Australia from the previous quarter's benchmark, according to sources.

Peabody Energy has sold North Goonyella premium mid-vol at $200/t FOB Australia under contract for the fourth quarter to Japanese steelmaker Nippon Steel.

But other Australian coal suppliers like Anglo American and Rio Tinto were still holding back — expecting higher-priced settlements.

The premium mid-vol benchmark agreements for the fourth quarter trail that of Australian low-vol PCI and semi-soft contracts which were signed at $133/t FOB Australia and $130/t FOB Australia, respectively.

The current spot scramble for premium low-vol coals due to Anglo American's German Creek force majeure declaration on October 7 have widened the price gap between mid-vols and low-vols, sources said.

Anglo American and Rio Tinto also produce the German Creek and Hail Creek coal brands respectively — premium low-vol coals that have been especially in short supply recently.

A consistent benchmark accord for the fourth quarter prime hard coal needs to be agreed soon, or the benchmark system will lose its relevance," Platts cited a source of one large Asian steel mill as said.

Whitehaven coal output surges in Q3

Whitehaven Coal is forecasting higher prices in the current quarter as it looks to cash in on the sharp jump in benchmark coal prices and a continued lift in production from its new mine, The Australian reported.

The east coast miner produced 5.16 million tonnes of saleable coal during the three months to September 30, up 20% from 4.31 million tonnes a year ago.

It produced 1.9 million tonnes of coal at Maules Creek mine in NSW, its newest mine, despite the adverse impact of heavy rain. Its production will be ramped up to an annual rate of 10.5 million tonnes in the second half of fiscal 2017, from 8.5 million tonnes now.

Coal output at Narrabri - its lowest cost and most productive mine - jumped 136% to 2.35 million tonnes, following the completion of a longwall change.

It realized an average price of $70/t for the steelmaking ingredient in the September quarter, up from $63.2/t in the preceding three months, but this is likely to rise much further given the jump in met coal prices since mid-year.

Spot prices for metallurgic coal currently trade at $226/t, up from $90/t in June, while hard coking coal contracted prices for the December quarter have been settled at $200/t, up 116% on the September quarter.

"The increase has been driven by cuts to onshore Chinese coal production, aimed at reducing overcapacity, which have sharply lifted demand for Australian coal," HSBC economist Paul Bloxham was cited as said.

Metallurgic coal accounts for just 16% of Whitehaven's current production, but the company aims to raise this to 33% on the back of higher production from Maules Creek.

The company's average realized price for the thermal coal, its main export, was $64/t in the September quarter, up from $51.94/t in the previous three months. The Newcastle globalCOAL Index - a benchmark of thermal coal prices - averaged $67/t in the September quarter, a 30% jump from the previous three months.

Rio cuts 2016 iron ore guidance; Fortescue shipments up

Global miner Rio Tinto on Thursday cut its 2016 guidance for iron ore shipments by as much as 5 million tonnes after releasing lower third-quarter production data, citing shipping interruptions.

The downward revision - equivalent to as much as $290 million at current ore prices - comes as the steelmaking commodity stages a recovery on the back of a surprise lift in demand from China.

Rio Tinto, the world's second-biggest producer of iron ore, said third-quarter shipments from Australia fell 2 percent from the previous quarter to 80.9 million tonnes and 5 percent from the same period a year ago.

"Shipments were reduced by port and rail maintenance during the quarter and annual shipment guidance is revised to between 325 and 330 million tonnes for 2016," the company said.

Prior full-year guidance was for 330 million tonnes, according to Rio Tinto. Calendar 2017 production guidance was left unchanged at 330 million to 340 million tonnes

Rio's cutback came as smaller rival Fortescue Metals Group boosted iron ore shipments by 5 percent in the September quarter to 43.8 million tonnes, adding that its costs had dropped for an eleventh straight quarter.

Iron ore accounts for the majority of Rio Tinto's worldwide revenue and all of Fortescue's revenue. It is mostly mined in Australia and sold to Chinese steel mills.

RBC analyst Paul Hissey said in a note said he favoured Rio Tinto over other major diversified producers due to its large exposure to iron ore, which had the potential to sustain current price levels.

Iron ore was selling for $58 a tonne on Thursday, the highest in more than a month, driven by an unexpected surge in demand from China.

China's iron ore imports reached 93 million tonnes in September, the second highest on record, as healthy profits pushed steel mills to ramp up output.

"Steel consumption in China remains stable," Fortescue Managing Director Nev Power said in a statement.

Fortescue said it sold its ore, which has a lower iron content than its bigger rivals, at 82.5 percent of the benchmark price, or $48.36. a tonne, over the July 1-Sept 30 period.

Mining costs had declined by 5 percent to $13.55 per tonne, although the figure excluded shipping and insurance, according to Fortescue.

BHP Billiton on Wednesday held its fiscal 2017 production guidance for iron ore of 265 million to 275 million tonnes after posting a modest 1 percent decline in output in the September quarter.

China Jan-Sept coal industry FAI turns better

China Jan-Sept coal industry FAI turns better

China's fixed-asset investment (FAI) in coal mining and washing industry amounted to 220.0 billion yuan ($32.64 billion) over January-September, with the year-on-year fall narrowing 7 percentage points from a month ago to 26%, showed data from the National Bureau of Statistics (NBS) on October 19.

Private investment in the sector stood at 133.8 billion yuan, falling 19.8% year on year.

During the same period, fixed-asset investment in all mining industry in the country posted a yearly decline of 20.9% to 737.7 billion yuan; of this, private investment in mining industry stood at 451.8 billion yuan, dropping 14.6% from the previous year.

Meanwhile, the total fixed-asset investment in ferrous mining industry in the first nine months witnessed a yearly drop of 28.9% to 75.7 billion yuan; while that in oil and natural gas industry dropped 21% on year to 153.7 billion yuan, according to the NBS data.

The fixed-asset investment in non-ferrous mining industry stood at 108.7 billion yuan during the same period, down 6.8% from the year-ago level, data showed.

Coal exporters wary of end to Chinese benevolence

The problem with coal's spectacular rally this year is that it's largely a Chinese political phenomenon, and what Chinese politicians give they can just as easily take away.

Australian thermal coal spot cargoes at Newcastle port for November this week breached $100 a tonne for the first time in 4-1/2 years, closing on Tuesday at $102.20 and taking this year's rally to almost 120 percent.

There was much head-scratching this week at the annual World Coal Leaders conference in Lisbon over how virtually every analyst worldwide had misread the Chinese market, where imports have surged to 180.18 million tonnes in the first nine months of the year, up 15.2 percent from the same period of 2015.

The majority of analysts had expected China -- the world's biggest coal producer, consumer and importer -- to import less of the fuel in 2016 because of a slowing domestic economy and an official push to limit use of more polluting energy sources.

What caught most analysts off guard was the reduction in working days for Chinese coal mines to 274 days a year from 330 in an effort to cut output and thereby raise prices and profitability for domestic miners.

This was a blunt measure that appears to have been enforced rather than talked about and largely ignored, as is sometimes the case in China and happened this year in steel markets, where actual capacity cuts have fallen well short of what was planned.

Ultimately, the Chinese coal and steel sectors underscore the difficulty in accurately predicting what is likely to happen in the world's commodity epicentre.

In general terms, the mainly Western analyst community believed that steel capacity would be cut, most likely because there was a firm number to go along with the policy. But they remained sceptical about coal, given the absence of a numerical target.

What the market ended up with was Chinese domestic coal output down 10.5 percent year on year to 2.46 billion tonnes in the nine months to Sept. 30, while steel production gained 0.4 percent over the same period.

This means that Chinese domestic coal output is down about 300 million tonnes in the first three quarters -- a drop that is far larger than the reduction in demand from weaker thermal power generation.

This has resulted in inventory levels falling sharply in China, with Shanghai Steelhome data SH-QHA-COALINV showing stocks at China's major coal port Qinhuangdao of 3.55 million tonnes at Oct. 17, up from recent lows but still less than half the 7.25 million tonnes at the same time last year.

SCEPTICAL MINERS

The lower output and falling inventories resulted in a draw on the seaborne market that exporters weren't positioned to take advantage of, given the parlous state of the industry after five years of declining prices.

Most mines in major regional exporters Australia and Indonesia were being run at capacity and on the smell of an oily rag as operators went into survival mode, paring costs to the bone and deferring capital spending and exploration.

This meant that when Chinese demand did arrive, it couldn't be met easily, thereby pushing up prices rapidly.

However, understanding what has happened is only half the battle in coal markets.

Producers attending the World Coal Leaders conference remain sceptical that the rally is sustainable for the longer term, even if they expect prices to remain biased higher for the next six months or so.

The thinking is that the Chinese will continue to backtrack from capacity cuts and allow domestic miners to ramp up output to rebuild inventories and prevent prices from going too high.

This will take several months to flow through the system, meaning that the good times for exporting miners will last a while yet.

But it will take a very brave producer to invest in expanding output on the back of renewed hopes for sustained Chinese import growth.

As the old saying goes, once bitten, twice shy. Miners are still reeling from the massive expansion from 2010, which left the seaborne market structurally oversupplied when Chinese demand fell short of some extremely bullish forecasts.

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Atlas increases output in Sept quarter

Iron-ore miner Atlas Iron has reported an 8% increase in shipped tonnage during the three months to September, compared with the previous quarter, as C1 cash costs declined by 3%.

Some 4.1-million tonnes of ore was shipped during the September quarter, at a C1 cash cost of A$34/t.

MD Daniel Harris said on Wednesday that the quarterly results provided further evidence of the company’s turnaround on both the operational and financial fronts.

“These results continue to demonstrate that Atlas is maintaining its tight control on costs while generating strong production volumes. This combination is enabling Atlas to take advantage of solid iron-ore prices, as shown by our margins and our overall free cash flow generation.”

Cash on hand at the end of the September quarter increased to A$95-million, compared with the A$81-million at the end of the June quarter.

Harris said the increased cash flow meant that Atlas will repay A$15-million in debt during October, which will further strengthen the company’s balance sheet. Net debt at the end of September was less than A$90-million.

China Sept coke output up 7.3pct on year

China produced 39.29 million tonnes of coke in September, edging up 0.41% from August and up 7.3% year on year, showed data from the National Bureau of Statistics on October 19.

Total coke output over January-September dipped 1.6% on year to 331.74 million tonnes, data showed.

In September, China's coke exports plunged 40.38% from a month ago to 0.62 million tonnes, with value dropping 36.97% on month to $92.24 million, showed data from the General Administration of Customs (GAC).

Over January-September, coke exports stood at 7.5 million tonnes, climbing 13.9% on year, with value decreasing 14.2% on year to $936.47 million.

South Korea Sept met coal imports further rise

South Korea imported 2.93 million tonnes of metallurgical coal in September, including coking coal and PCI coal, rising 11.82% on year and 7.83% on month, according to the latest customs data.

The country imported 2.39 million tonnes of coking coal in September, up 22.64% from a year ago and 12.76% from August.

Of this, 1.41 million tonnes were shipped from Australia, increasing 37.99% on year and up 36.47% on month.

This was followed by Russia at 479,900 tonnes, surging 163.1% from the same month in 2015 and up 87.46% from the previous month; the US at 240,600 tonnes, almost doubling the year-ago level and a rise of 20.97% from August; and Canada at 224,800 tonnes, dropping 51.33% on year and 54.50% on month.

In September, South Korea imported 541,100 tonnes of PCI coal, declining 19.48% compared with the year-ago level and falling 9.59% on month.

Australia remained the largest PCI coal supplier to South Korea in the month at 340,500 tonnes, a drop of 40.37% on year, followed by Russia at 140,100 tonnes, soaring 230% from the previous year, and China at 38,500 tonnes.

China Sept crude steel output edges down on month

China produced 68.17 million tonnes of crude steel in September, rising 3.9% year on year but edging down 0.6% month on month, showed data from the National Bureau of Statistics (NBS) on October 19.

Over January-September, the country's crude steel output rose slightly by 0.4% from the year-ago level to 603.78 million tonnes.

Meanwhile, production of steel products rose 0.2% on month and 4.3% on year to 98.09 million tonnes in September; and pig iron output posted a year-on-year increase of 4.1% to 59.32 million tonnes, down 1.4% from August, the NBS data showed.

In the first nine months this year, China produced 851.78 million tonnes of steel products, up 2.3% on year; while pig iron output slid 0.3% on year to 528.25 million tonnes.

Attached Files

China's steel capacity cuts draw closer to an end

China's capacity cuts in steel industry this year is drawing closer to an end in the fourth quarter, following great efforts the country and steel enterprises have made in cutting surplus capacity during the past months.

Jiangsu, Sichuan and some other provinces in China are expected to finish their de-capacity targets set for 2016 by end-October.

Sichuan had demolished six furnaces in three steel makers, shedding 4.2 million tonnes per annum (Mtpa) of capacity.

Jiangsu, the second largest steel province, will cut 3.9 Mtpa of steelmaking capacity at four steel firms in advance by end-October.

Jiangsu has 49 above-sized steel makers at present, with iron and steel-making capacity at 104 Mtpa and 132 Mtpa.

It planned to cut crude steel capacity of 17.5 Mtpa during the 13th Five-Year Plan period (2016-2020), with 70% of the target to be done by end-2018.

By end-August, China had completed 77% of its 2016 de-capacity target or 34.68 Mtpa.

Higher demand, prices point to strong Q3 for Russia's steelmakers

Russia's steelmakers are expected to post higher earnings when they report third-quarter results in coming weeks due to a recovery in prices and stronger demand.

The companies, including Russia's largest NLMK and second-biggest Evraz, suffered in 2015 as world steel prices plumbed 10-year lows and as the country's economic downturn sapped domestic demand. NLMK and Evraz full-year core earnings fell 18 and 39 percent respectively.

But steady or higher output levels in the third quarter coupled with a recovering global market outlook point to stronger earnings for the three months.

"We are increasingly positive on the sector outlook with strong third-quarter earnings expected," VTB analysts wrote in a note. "With seasonally stronger demand ahead in the fourth quarter ... we expect further gains ahead."

Steel prices fell to their lowest level since 2004 last year due to oversupply from China, the world's largest producer and consumer of steel, and slack demand.

They have since recovered by around 30 percent and the World Steel Association said last week it now sees global demand growing 0.5 percent year-on-year in 2016, compared with a 0.8 percent fall forecast in April.

Russia's Evraz said on Tuesday its third-quarter crude steel output rose 6 percent quarter-on-quarter to 3.4 million tonnes after the completion of blast furnace repairs.

Severstal's production rose 6 percent in the third quarter while MMK, Russia's third-largest producer, said output was flat at 3.2 million tonnes.

Only NLMK recorded a fall in output, down 4 percent quarter-on-quarter, due to planned repairs at its plant in Lipetsk.

But the steelmakers will have to contend with higher coking coal prices - a key component of steel production - which have doubled since July to more than $200 per tonne on expectations of lower supply. This will increase the steelmakers costs and potentially squeeze profit margins.

While Severstal and Evraz are partially shielded from the higher production costs by their in-house coal facilities, NLMK and MMK are particularly vulnerable, VTB analysts said.

Sergei Stepanov, head of Evraz's coal division, said: "We see that supply ... is at its limit, it all depends on China, whether it increases production."

"But I do not think prices will fall below $150 per tonne."

Evraz said on Tuesday its capital spending would total $450 million in 2016 and around $500 million in 2017-2018, having said in August it would be in the range of $375-400 million.

China's coal output output fell 12.3 percent last month, extending a prolonged period of government-enforced cuts before Beijing gave the go-ahead for producers to reopen shuttered capacity amid a surge in prices.

Output in September fell to 277 million tonnes from a year ago, according to the National Bureau of Statistics on Wednesday. Production has fallen every month since at least July last year, government data shows.

For the first nine months, output was down 10.5 percent to 2.46 billion tonnes, the bureau said.

The drop may not last into October. At the end of September, Beijing allowed producers to increase output after government efforts to cut overcapacity and curb pollution depleted supplies to utilities and triggered an historic rally in prices.

Extending one of the commodity market's biggest ever bull runs, Australian thermal coal prices hit $100 per tonne on Tuesday for the first time since 2012.

Attached Files

Liberty House said to bid for Arrium's assets

Liberty House Group is among bidders to have submitted an offer for the steel and iron-ore assets ofAustralia’s Arrium, according to people with knowledge of the process.

The London-based steelmaker and metals trader made a non-binding proposal, the people said, requesting anonymity as the details are private. Liberty House faces competition, including from private equity groups and entities with interest only in specific assets, two of the people said.

Liberty House declined to comment in an e-mailed statement. A representative of KordaMentha also declined to comment on details of the process.

Arrium, which appointed the administrator in April, hassteel-making capacity of about 2.5-million metric tons a year.Operations include the Whyalla steelworks and port, the OneSteel steel manufacturing, distribution and recycling unit and an iron ore mining division, according to company filings. Binding offers are scheduled to be submitted in December and detailed due diligence materials are being prepared for bidders, KordaMentha said in an October 5 filing.

'STRONG PREFERENCE'

The administrator has “a strong preference for offers that will allow for the sale of the business in one line as a going concern,” it said. A separate process for a sale or an initial public offering is underway for Arrium’s mining consumablesbusiness, which has sites from Chile to Indonesia.

Liberty House was among bidders for Tata Steel’s UKoperations and in March agreed to buy two Tata Steel mills inScotland. The producer last month formally reopened the Dalzell works in Scotland and last year restarted operationsat a rolling mill in Wales.

Global steel producers, including Arrium, have been pressured by rising exports from China, maker of half the world’s steel, which have weighed on prices and eroded profits. Arrium’s underlying net loss in the six months to December 31 widened to A$24-million ($18-million), from A$22-million a year earlier, the producer said in February. Lenders in April rejected the producer’s proposed $927-million recapitalisation plan.

Steel prices have improved in 2016 as global policy makers pledged to back growth, bolstering the outlook for producers.BlueScope Steel, Australia’s top steelmaker, more than doubled underlying profit in the year ended June 30, whileArcelorMittal, the world’s biggest producer, in July reported the highest quarterly profit since 2014.

Liberty House, with steel operations in the UK, Africa andIndia, is pursuing a strategy to acquire distressed assets and drive improvements by lowering energy costs and favoringscrap metal over iron ore, executive chairperson Sanjeev Gupta said in an April interview.

China Coal Energy Sept coal sales up 7.3pct on year

China Coal Energy Co., Ltd, the listed arm of China National Coal Group, sold 11.29 million tonnes of commercial coal in September, rising 7.3% year on year but down 11.7% month on month, the company said in its latest statement.

Of the sales, 6.48 million tonnes were self-produced commercial coal, dropping 12.2% on year and down 3.9% from August.

In the first nine months, the company sold 100.46 million tonnes of commercial coal, falling 0.7% from the year before, with sales of self-produced commercial coal dropping 15.2% to 60.73 million tonnes.

The company produced 6.6 million tonnes of commercial coal in September, falling 11.3% on year and down 3.6% from August.

The production during January-September stood at 60.07 million tonnes, sliding 16.1% from the year prior.

Australian thermal coal prices hit $100 per tonne for first time since 2012

Australian thermal coal spot prices have hit $100 per tonne for the first time since 2012, with a cargo ordered at that price for delivery from Newcastle port in November, according to trading platform GLOBALcoal on Tuesday.

The deal means that Pacific benchmark prices have now soared by almost 100 percent since June to levels last seen in April 2012, making coal the hottest commodity of the year.

The price rally ended half a decade of steady declines, and has lifted mining share prices like Whitehaven Coal, Glencore or Anglo American away from lows.

The price spike has been spurred by domestic mining cuts in China, which has required electricity generators and also steel makers to make up for the shortfall via imports, taking much of the market by surprise.

"Coal miners are just as surprised as anyone in how well coal has performed. Limited supplies of high-quality thermal coal should keep the market in good shape through the end of the year. After that, it will be determined by the supply response," said James Wilson, analyst at Argonaut Securities.

Many traders say that the almost unprecedented boom of 2016 will almost certainly lead to some form of a downward correction.

Forward prices for both Australian physical coal prices as well as for Chinese coal futures show prices fall off sharply into 2017.

Insiders said that since the beginning of this year, the country has actively promoted the supply-side structural reform which helped ease the supply-and-demand imbalance of the coal market. From a long-term perspective, coal consumption will continue to decline with increasing overcapacity pressure, so it remains an arduous task to keep coal prices stable.

The top economic planner has said that the country's coal price will stabilize and shore up coal production. New coal supplies helped major thermal power plants increase their inventory by some 5.28 million tonnes in September, according to an online statement of the NDRC.

On Sept 23 and Sept 27, two ministerial meetings on winter coal supply agreed to release certainly advanced production capacity to ensure supply.

It also decided to relax a limit on the number of production days for efficient coal producers, with the former 260-day cap increased to a maximum of 330 days. The original limit, had it been followed, would have cut production by over 500 million tonnes in 2016.

At a press conference on Sept 23, an NDRC official attributed the price rise to increasing coal consumption, a crackdown on illegal production, as well as transport and logistical problems.

Jiangsu Jan-Sep coal output down 29pct on year

Eastern China's Jiangsu province produced 10.31 million tonnes of raw coal over January-September, down 29.05% year on year, showed data from the provincial Economic and Information Technology Commission.

Of this, Xuzhou Coal Mining Group, one large state-owned coal producer of the province, contributed 3.71 million tonnes or 36% of the total over the same period, down 40.27% from a year ago.

Datun Coal & Electricity Co., Ltd, a subsidiary of China National Coal Group, produced 6.22 million tonnes of raw coal, sliding 7.2% from a year ago.

Coal output from local state-owned mines – owned by the provincial and lower-level governments – plunged 76.7% on year to 377,100 tonnes.

Commercial coal sales in the province reached 9.54 million tonnes over January-September, down 24.45% on year.

Coal sales of Xuzhou Coal Mining Group and Datun Coal & Electricity Co., Ltd stood at 3.39 million and 5.75 million tonnes during the same period, falling 38.45% and 3.26% on year; sales of local state-owned mines dropped 75.52% on year to 388,800 tonnes.

By end-September, commercial coal stocks in coal producing firms stood at 168,700 tonnes, falling 65.63% on year but up 7.18% from the start of the year.

In September, sales price of commercial coal averaged 496 yuan/t ($73.62/t), rising 137.41 yuan/t on year and up 54.35 yuan/t from August.

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Rio Tinto's coal assets attract four suitors on price rise

The contest to buy Rio Tinto's $1 billion-plus coal mining portfolio is understood to have widened to about four parties, as surging commodity prices prompt lenders to reopen their doors to the resources industry, The Australian reported.

Already, Yancoal and Glencore are competing for the thermal coal mines. Some market analysts believe Yancoal, which is eager to secure long-term supply into China, and Glencore, a trading house that can maximise the returns on its position, are the most logical buyers.

Other parties are believed to have entered the frame in recent days, amid a change in debt market conditions.

Possible interested suitors include private equity firm Apollo, which is in due diligence to buy Anglo American's Grosvenor and Moranbah North coal mines in Queensland.

Another is perhaps the BHP Billiton-Mitsubishi Alliance, which was the under-bidder in that competition.

A note from HSBC cites the rampant gains in both the coking coal price, which has more than doubled from $90/t in June to $226/t, and the thermal coal spot price, which is $89/t, compared to the $54/t it traded at around June.

While in some respects this is good news for coal miners, the fluctuating prices are creating challenges for advisers working on deals, trying to determine the right price for the assets at a time the overall sector appears to be improving.

According to a note from HSBC, coal miners are also now benefiting from higher contract prices.

The bank noted that a fourth-quarter contract price for coking coal negotiated with a major Japanese buyer was 117% higher than the third quarter price at $200/t, in a deal that will likely set the benchmark for the quarter.

For thermal coal, the contract price is set annually and is fixed through to March 2017, so the impact is difficult to predict.

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Glencore's loss on the hedge to reach $1.2 bln as prices rally

Glencore, the world's biggest coal exporter, is expected to suffer loss on the hedge of as much as $1.2 billion as coal prices continued to go up wildly in the second half of this year, Bloomberg reported, citing analysts of Liberum Capital Ltd.

The company reported a $395 million mark-to-market non-cash loss in the first half of the year on hedges for future sales, which applied to the equivalent of about half its annual production.

The rally in thermal coal, which was mainly bolstered by increased coal import demand from China since April amid its capacity cut policy, is taking a bigger bite out of Glencore's profits after the company locked in prices prior to the surge.

Coal prices are expected to decline after Chinese governments decided to temporarily loosen limits on thermal coal production until December, Liberum analyst Ben Davis wrote in a report on October 17.

Glencore has been working to slash its debt load after its share price collapsed last year. The move to hedge about 55 million tonnes of output was a "corporate risk-management" decision, the company said in August.

It produced 59 million tonnes of coal in the first half of this year from mines in Australia, Colombia and South Africa. Glencore expects the forward sales to be settled by the end of June.

"We have a trading view that over the next six months it remains well supported. Glencore will produce about 125 million tonnes of coal this year", James McGeoch of Citigroup Inc. wrote in a note to clients on October 17.

US coal production to fall 19pct on year in 2016, EIA

Coal production in the US is expected to fall 19% year on year to a total of 658.4 million tonnes in 2016, according to the monthly Short Term Energy Outlook released by the Energy Information Administration (EIA) on October 13.

The coal output in 2017 is likely to climb to 683.9 million tonnes, partly due to higher prices of natural gas, said EIA in the report.

Coal consumption in power sector is expected to drop 9% on year to 610.4 million tonnes in 2016, which would be the lowest volume since 1984. It will account for 30% of total electricity output in this year.

Coal consumed in power sector in 2017 may total 620.4 million tonnes, up 1.7% from a year ago. It will account for 30.5% of electricity production in 2017.

Total coal consumption of the country is projected to be 662.1 million tonnes in 2016, down 8.9% on year, the lowest annual volume since 1982. In 2017, it will be 671.2 million tonnes.

Coal exports of US are expected to decline 26.3% on year to 49.4 million tonnes in 2016, with exports of metallurgical and thermal coal at 34.6 million and 14.8 million tonnest, accounting for 70.1% and 29.9% of 2016 exports.

EIA projects the country's coal exports to total 47.2 million tonnes in 2017, with metallurgical and thermal coal exports at 31.3 million and 15.9 million tonnes.

Shanxi Coking Coal allows 27 coal mines to boost output

Shanxi Coking Coal Group Co., Ltd., China's top producer of the steel-making material, has been allowed to boost output at 27 coal mines over October 1 to the end of the year to ease tightness in the domestic market.

These mines, with annual capacity of 72.4 Mtpa, will produce 15.61 million tonnes of coal in the fourth quarter of the year, 1.763 million tonnes higher than the previous plan of 13.85 million tonnes based on the government-mandated 276-workday reform.

Meanwhile, Shanxi Jincheng Anthracite Mining Group Co., Ltd., another major coal producer in the province, would also increase workday of its 11 mines to 330 days in the same period.

Total production capacity of these mines stood at 35.5 Mtpa. And they will provide as much as 5.8 million tonnes of coal in the fourth quarter.

As one major coal production base in China, Shanxi produced 523.75 million tonnes of coal in the first eight months, down 15.7% year on year, accounting for 24% of the country's total. Coal output in August stood at 66.56 million tonnes, down 21.3% on year.

Cyclones off Western Australia could hike iron ore price

Cyclones slamming into Western Australia are nothing new for Australia's iron ore producers, but this summer could be especially stormy in the Southern Hemisphere, according to the Australian Bureau of Meteorology.

The bureau forecasts that inclement weather due to "neutral to weak La Niña conditions in the tropical Pacific Ocean and warmer than average ocean temperatures to the north and east of Australia," will mean a higher-than-average number of cyclones for the region. A greater frequency of cyclones generally corresponds to the La Niña weather phenomenon.

Western Australia, which hosts the Pilbara iron ore belt, has a 67% chance of getting more than the average 11 tropical cyclones from November to April.

"Ocean temperatures are currently 1–2 °C warmer than average to the north and east of Australia which is favourable for tropical cyclone development. The Southern Oscillation Index, a measure of the atmospheric component of [the El Niño-Southern Oscillation] (ENSO), has been positive through this period and exceeded La Niña thresholds in the last two weeks of September," the bureau stated in its Australian Tropical Cyclone Outlook for 2016 to 2017, published last week.

It predicts Western Australia, which hosts the Pilbara iron ore belt, has a 67% chance of getting more than the average 11 tropical cyclones from November to April. At least two of those cyclones are expected to make landfall, compared to last season, which was the least active on record. A cyclone in Januaryshut down Port Hedland, the world's largest iron ore port. Queensland, a major coal-producing region, will be hit worse. The bureau says the Queensland coast will see up to eight cyclones, though only one or two should reach land.

The expected bad weather has Macquarie, an Australian bank, saying that the supply or iron ore and metallurgical coal could be affected.

“The first quarter of each year is typically weakest for seaborne supply for both commodities due to wetter weather, and with conditions expected to be more adverse than usual, these markets could stay tighter for longer,” says the bank in a research note quoted by The Australian.

In the most recent trading session iron ore was up 20 cents to US$56.80 per tonne, extending gains to five straight sessions.

The price of iron ore is up 32% this year and like coking coal the resurgence comes against expectations of further declines as Chinese steelmaking peak after three decades of growth.

In 2011 floods in key export region in Queensland saw the coking coal price touch $335 a tonne. The iron ore price peaked in February that same year at $191.50 a tonne.

Whitehaven production surges in September quarter

Coal miner Whitehaven Coal has reported a 41% increase in run-of-mine (ROM) production for the quarter ended September, compared with the previous corresponding period, on the back of a 136% increase in production at its Narrabri mine, in New South Wales.

Whitehaven noted that the Narrabri mine produced 2.35-million tonnes ROM coal during the September quarter, with the higher output driven by a longwall change-out.

Production from the Maules Creek mine also increased by 23% during the period under review, as the operation began its second year of commercial production. The mine produced 1.9-million tonnes ROM coal for the three months to September.

Coal sales for the September quarter reached just over five-million tonnes, which was 12% higher than the previous corresponding period.

Metallurgical coal sales from Maules Creek mine accounted for just over 20% of the mine sales, as semi-soft coking coaloutput from the mine continued to attract strong market interest.

The miner told shareholders on Monday that it continued to make good progress with trial shipments of Maules Creeksemi soft coking coal to a number of steelmakers in the Asian region.

Global thermal coal trades to plummet to 527 mln T by 2035

Thermal coal trades worldwide are expected to plummet to 527 million tonnes by 2035, down from 900 million tonnes this year, forecasted Wood Mackenzie, an energy consulting company, in its latest report.

It came with an expected sharp drop from 41% in 2013 to 16% in coal's share of the global power generation by 2035, in order to realize target of holding global temperature rises within 2°C, according to the report.

The shrinking demand from thermal coal may cause its prices to slump to less than $50/t in the long run, said Wood Mackenzie.

Japan, main importer of Australian thermal coal, would see its annual thermal coal imports drop to 100 million tonnes while trying to fulfill a targeted decline of coal's share of power generation to 25% by 2030, said Jonny Sultoon, a head of the company.

The goal of 2°C is actually difficult to obtain though all the involved countries put great efforts in reducing emissions, which, if to be realized, Japan alone will need to decrease 50-60 million tonnes of coal imports annually, Sultoon warned.

Zhongtian Hechuang Energy is a joint venture established in September, 2007, by Sinopec with 38.75% stake, China National Coal Group with 38.75%, Shanghai-based Shenergy Co., Ltd with 12.5% and Inner Mongolia Manshi Coal Co., Ltd with 10%.

The company in late September started methanol production from its coal-to-olefins unit in Ordos.

China's Hebei imposes 'special emission' limits on steel mills

China's Hebei province, the country's biggest steelmaking region, has imposed what it calls "special emission restrictions" on local mills as part of its war on smog, according to a policy document.

Local steel enterprises will have until Sept. 1, 2017, to ensure their facilities comply with tough new standards for sulphur dioxide and other major sources of air pollution, the local environmental protection bureau said in a notice.

Hebei is responsible for nearly a quarter of China's total national steel output. It was the location of seven of China's 10 smoggiest cities last year and is a major source of air pollution in China's capital, Beijing.

The province has pledged to shut 60 million tonnes of crude steelmaking capacity and 40 million tonnes of coal production capacity from 2014 to 2017.

Last year, steel production in Hebei rose 1.3 percent on the year to 188.3 million tonnes, though total capacity remains much higher. Coal output in the province fell 5.4 percent to 82.2 million tonnes.

According to a notice issued by the local environmental protection bureau on Friday, 41 million tonnes of steel capacity and 27 million tonnes of coal capacity have already been closed.

The province, one of the main fronts in a "war on pollution" declared by Premier Li Keqiang in 2014, has been under pressure to crack down on "backward" production capacity and firms that break environmental rules.

It was heavily criticised by the Ministry of Environmental Protection (MEP) earlier this year after an inspection tour revealed that local firms had illegally expanded production capacity and engaged in "fraudulent practices" aimed at circumventing rules.

Hebei has since launched a campaign against local steel and coal producers, and the provincial government said last week it had uncovered 1,173 illegal projects in the steel sector, involving 93 companies.

According to MEP data, average concentration levels of PM2.5, a major smog indicator, fell 17.1 percent to 58 micrograms per cubic metre in the Beijing-Tianjin-Hebei region over the first three quarters of 2016.

However, six of the 10 most polluted cities for that period were still in Hebei province, the ministry said on Thursday.

China's National Meteorological Center (NMC) issued a yellow smog alert for Beijing and parts of Hebei on Saturday, and urged residents to take protective measures.

The company will keep prices for its main product, H-shaped beams used in construction, at 65,000 yen ($631.70) per tonne and prices for steel bars, including rebar, at 47,000 yen a tonne.

The company cut product prices by up to 13 percent for October.

"The last month's price cut has helped diminish market speculations that prices would go further down, but overall demand is not resilient enough to bolster prices," Tokyo Steel's managing director, Kiyoshi Imamura, told reporters on Monday.

Local demand is expected to improve late this year or early next year as construction for the 2020 Summer Olympic Games and redevelopment projects in the Tokyo metropolitan area are set to start next summer, Imamura added.

Shanxi publicizes 2nd batch of coal mines to be shut this year

Coal-rich Shanxi province in northern China publicized the second batch of coal mines to be shut in 2016, further eliminating coal production capacity of 12.65 million tonnes per annum (Mtpa) through closure of 10 coal mines, according to a de-capacity timetable released on October 13 by the Shanxi Coal Industry Administration.

The administration on August 25 announced that the provincial government planned to cut coal capacity of 10.60 Mtpa by shutting down 15 coal mines in the first stage, which has been fulfilled.

The second batch of coal de-capacity target is expected to reach by October 31, showed the schedule.

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China completes 80% of coal de-capacity target by end-Sep, NDRC

China has completed over 80% of coal capacity cut target set for 2016 in the first three quarters, and detailed information is to be released as soon as possible, said Zhao Chenxin, spokesman of the National Development and Reform Commission (NDRC), in a press conference on October 13.

China began to pick up pace in cutting coal capacity in second half of this year, after worries were aroused over only 29% of the finished de-capacity task in the first six months.

NDRC correspondingly decided to allow more coal miners to boost output and expand supply in late September, in order to curb fast rises of coal prices. The move, however, brought about doubt whether the country is going against its original policy.

Cautious move and continuous efforts should be made by the government in capacity cuts of domestic coal sector in the rest months, to assure the completion of the 2016 task.

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